India’s consumer industry is witnessing a massive transformation and is set to become the world’s third largest by 2027, only behind the US and China. The industry is currently undergoing a revolutionary change driven by several key factors such as growing young population and a burgeoning middle class, predominantly concentrated in urban hubs, who are the key stimulants of consumer demand and growing expenditure.
The preferences of a tech-savvy and aspirational demographic are compelling companies to adapt, innovate and align their offerings to suit evolving demands. The expanding middle class, with higher disposable incomes, is contributing to increased spending on a wide array of goods and services that offer convenience, memorable experience, and quality. This has spurred the growth of tech-integrated retail formats and a rising demand for experiential services. Additionally, a growing awareness of health and sustainability concerns is driving a demand for healthier products, sustainable practices, and ethical sourcing. This confluence of demographic shifts, rising middle class, urbanization, digital transformation, experience economy, and health-consciousness is moulding India’s consumer industry into a dynamic and adaptive landscape. Companies that successfully navigate these trends are poised to thrive.
From an investment standpoint, it is essential for the government to a) revamp FDI policies making them more attractive; b) eliminate regulatory obstacles that hinder foreign investment. FDI relaxations across products and for countries that propose to manufacture in India, would invigorate the sector, making it even more appealing to foreign investors and thereby generate more investments in the entire value chain. Furthermore, governments can be encouraged to raise awareness among small businesses and artisans, fostering public-private collaborations that take up focused research efforts.
For domestic manufacturing companies, while the government has successfully implemented various PLI schemes, there is the constant need to add new sectors under the PLI purview. Focus could be on sectors having limited domestic infrastructure and excessive import dependence. Also, the businesses would appreciate an extension of the sunset date (31 March, 2024) to avail concessional rate of taxation @ 15% for new domestic manufacturing companies. Such a measure would boost domestic manufacturing and positively impact the economy.
Providing relief from the inverted duty structure could further accelerate growth in the manufacturing environment. This is of utmost importance specifically for the electric vehicle (EV) industry, which has gained relevance in almost all other sectors such as automobile, transport, logistics, etc. Further, while slashing of tax rates on EVs has been a welcome step, revamping the current taxation mechanism is imminent. OEMs end up paying more tax on inputs in comparison to the output side, blocking not only initial stage costs of the OEMs, but also rigorously increasing refund compliance burden on them. Revising the tax rates on the input side can serve as an immediate relief for the stakeholders.
In terms of individual taxation, measures to modify the current perquisite rules to include Kilowatts (kW) value vehicles (i.e. EVs) in addition to cubic capacity (Cc) vehicles (i.e. petrol/diesel cars), would further encourage consumers to shift to EV.
Similarly in the context of easing compliance, from a transfer pricing regulation standpoint, existing safe harbors applicable to core and non-core auto component manufacturers can be expanded to cover core and non-core components for vehicles / technologies of the future such as EV, hydrogen as well. In addition, the APA program needs attention from the perspective of timing and amount of pendency.
Jan 22,2024
Source: Economic Times