Last September, the Finance Minister Nirmala Sitharaman had sparked off a memefest by commenting on the spending habits of millennials. She had said that their habit of using taxi-sharing apps was slowing down the auto sector. There were many jokes, among them, “The life insurance industry is affected because millennials are dead inside.”
Despite what the millennials put her through, this Budget may have good news for them. Tax rate has been halved from 20% to 10% for those in the Rs.500,000 to Rs.700,000 income bracket. Abhijeet Kundu, analyst at Antique Stock Broking, says a large chunk of the millennial population falls in this bracket. “There is a very good chance of discretionary spends on products such as apparels and footwear taking off here. This is the aspirational class and the consumption impact can be felt very quickly here,” he says. Discretionary spend in this income bracket has almost come to nought, which is a big reason for the consumption story tapering off.
Whatever the FM may have thought, the younger generation actually want to buy cars and apartments, at least according to the YouGov-Mint Millennial Survey done between September-October last year. They had spoken to 4,908 in this age group. While all of them would like a lot of these good things, the survey found that the richer (earning more than Rs.100,000 a month) among them are actually more likely to buy high-value value goods such as cars and even consumer durables. The income bracket that has been addressed in the budget showed much lesser intent to buy cars than their richer peers, but showed comparable intent to purchase homes and consumer durables. So perhaps, with the extra cash in hand, they will go shopping.
Besides this, there was little good news. The Budget had started on a high note, with Sitharaman talking of boosting incomes and enhancing purchasing power barely a minute into her speech. It sent hopes soaring on what big-ticket announcement would follow. For a country already in the midst of a serious slowdown, nothing has been more important than triggering demand growth.
By the end of it, however, there was little to cheer about. The consensus largely is that little steps have been taken, but nothing dramatic (which was the need of the hour) has been done. Right on top has been the change in the income tax slab, a move made doubtlessly to keep the middle class happy. It leaves more disposable income in the hands of the taxpayer and is viewed as a step that will kick off the consumption process. However, it also comes with a highly complicated income tax regime, which could leave the salaried class a harried lot. “It appears to be a case of less taxes being paid but we will have to wait for details to emerge,” says Milind Sarwate, founder of Increate Value Advisors.
He says the government’s approach is not to take the short-term approach. “It seems like the consumption story will be done through investment in infrastructure. That implies a long-term approach to the issue of triggering demand.”
It could still be a while before demand takes off. According to Nilesh Shah, MD of Envision Capital, in the very short-term (two to three months), there is unlikely to be any serious impact. “One will have to view this with a one year outlook for consumption-led demand to demonstrate results. It will start off with the urban middle class and that spike in spend could flow into rural India,” he explains. Sarwate agrees and adds that the story for FMCG companies will start to play out only in a couple of quarters.
To revive flagging demand, the real-estate sector too had been expecting some relief. The Budget has failed the residential builders but may have given a leg-up for commercial realtors. The decision to have new airports in 100 cities will be a windfall for those in commercial real estate. As Anuj Puri, Chairman, Anarock Property Consultants, explains, there is little need for worry at the commercial end of the story. “Creating data centres and new airports will keep these players busy but the real issue is how the residential market will play out,” he questions. In cities such as Mumbai and Delhi, residential demand over the last one year has dropped by 30-40%, with no light at the end of the tunnel. Puri maintains that there will be virtually nothing by way of offtake in either premium or luxury housing. “Affordable housing is where the action will be,” he says.