Packets of Parle-G biscuits manufactured by Parle Products Pvt. Ltd and Tiger Glucose manufactured by Britannia Industries Ltd. in a South Mumbai store. (Photographer: Vivek Amre/BloombergQuint)

Budget 2019: Modi’s Income Transfer To Boost Demand For Staples And Biscuits

The makers of biscuits and staples stand to gain the most from the government’s direct income transfer to small and marginal farmers even as consumer goods companies said it’s unlikely to spur any big-ticket spending.

Chai-biscuit is like a breakfast staple for farmers from this (low) income group,” Kamal Agarwal, executive director of Haldiram’s Food International Ltd., which sells snacks like chiwda and sev, told BloombergQuint. “Snacking will not go up, but farmers will use the money to buy essentials like biscuits. Also, consumption of pulses, wheat and rice will also go up as farmers will use the additional amount largely on food.”

The interim budget proposed a direct income transfer of Rs 6,000 a year to farmers with less than 2 hectares—more than 85 percent of farm holdings in the country—as disinflation in food prices has led to an agrarian distress. The Narendra Modi government allocated Rs 20,000 crore for the ongoing financial year and Rs 75,000 crore for the next fiscal under the Pradhan Mantri Kisan Samman Nidhi. That comes months ahead of the general election due by May as Modi tries to woo voters after the Bharatiya Janata Party lost three states in the Hindi heartland.

Budget 2019: Modi’s Income Transfer To Boost Demand For Staples And Biscuits

Nearly 60 percent of consumption for the category of households that will benefit from the prime minister’s scheme is contributed by food, according to National Sample Survey Organisation’s report for 2012. The income transfer could lead to an additional expenditure of Rs 4,000-5,000 crore a year on household goods by such families, Credit Suisse said in a post-budget note. That would support demand for fast-moving consumer goods, it said, adding that given that the transfer will happen in three equal installments of Rs 2,000 each, inflationary impact should be lower.

Budget 2019: Modi’s Income Transfer To Boost Demand For Staples And Biscuits

Also read: Budget 2019: This Village Shows All That Is Wrong With India’s Agriculture

The average yearly income of small and marginal farmers in India is Rs 61,138 by 2011-12 prices and Rs 79,779 by 2015-16 prices, said a report by the committee on doubling farm incomes submitted in September. Another Rs 6,000 a year will provide a substantial boost to demand from rural India, which contributes 35-40 percent of the sales of consumer goods makers, according to Dabur India Ltd. and Parle Products Pvt Ltd.

For Parle Products, half the biscuit sales are driven by rural consumption, said Mayank Shah, product head at the company. About 50 percent of its company’s sales come from low-priced packs and Shah expects Modi’s farm package to spur demand for the cheapest of its offerings.

Shah cited the example of Madhopur, a town in Uttar Pradesh with a population of about 5,000 people, where the company found that retailers stocked only Rs 5 packs of its biscuits, but not the ones sold at Rs 2.

It’s the smaller villages with a population of about 500 people that buy the Rs 2 pack, he said. “Chai-biscuit is consumed as a meal by farmers with small landholdings. Labourers who work in bigger farms are also given a packet of biscuit and tea for breakfast and other meals,” said Shah. “That’s where the consumption of a Rs 2 pack is high,” he said, suggesting that volumes of low-priced packs will grow in such rural belts.

The direct income transfer is also likely to boost the consumption of milk, pulses and other essentials. The farmers will look to boost their nutritional intake, RS Sodhi, managing director of Gujarat Co-operative Milk Marketing Federation Ltd., the maker of Amul branded milk and cheese, said. “Consumption of pulses and basic food items, which provide carbohydrates, proteins and fats will also go up.”

India’s largest hair oil maker said the extra income may also change the consumption pattern, prompting smaller farmers to buy branded personal care products. The scheme may boost sale of oil and shampoo sachets, according to Vivek Karve, chief financial officer at Marico Ltd.—known for its blue-bottled Parachute coconut hair oil. “A consumer who doesn’t buy branded goods may come into the fold and start buying smaller packs.”

Income Transfer Vs Waiver Vs Jobs Guarantee

Since the start of 2017-18, 10 states have announced farm loan waivers amounting to nearly Rs 1.7 lakh crore, data compiled by BloombergQuint showed. But consumer goods makers said the income transfer will have a better impact on consumption rather than loan waivers, where the money doesn’t go directly to farmers.

They cited the Rs 60,000-crore loan waiver by the United Progressive Alliance-led government in 2008. The farm loan waiver didn’t raise consumption as the money wasn’t given to the farmers, Shah said. “The marginal farmers then were anyway in a bad shape and this didn't put any extra income in their hands which could have caused an increase in consumption.”

What helped is income earned through the UPA’s flagship rural job guarantee scheme. “Overall, the period 2008-2014 was good for consumption as a fair amount of stimulus was given to rural markets and the NREGA’s (National Rural Employment Guarantee Act) impact on rural consumption was higher,” said Sunil Duggal, chief executive officer at Dabur India. “There’s no evidence to suggest any big consumption uptick subsequent to a farm loan waiver.”