Union Budget 2024: The 9 ways that D2C brands are going to be impacted

The agenda for the Union Budget 2023 is finally out in the open, with India’s finance minister Nirmala Sitharaman introducing a number of reforms that will impact the eCommerce landscape, and D2C brands in particular. 

The announcement is something founders of D2C brands have been keeping an eye out for, given the decision to establish export hubs to position India on the global eCommerce platform. It helps that India’s export figures crossed $400Billion in 2022, indicating a global uptick in demand for local produce. As per the latest 1Lattice and Sorin investments report, the Indian D2C market is growing at a CAGR of 38% YoY, with an estimated valuation size of $61.3 billion by 2027.. The Indian D2C market currently contributes to ~1% of the domestic FMCG, home and consumer accessories category, which is expected to capture 10% of the total market within the next 3 years.

The Budget lists 7 priorities that complement each other and follow the principle of  “Saptarishi” , which are

1) Inclusive Development 

2) Reaching the Last Mile

 3) Infrastructure and Investment

 4) Unleashing the Potential

 5) Green Growth

 6) Youth Power 

7) Financial Sector

Given the promise of relief measures for both the public and startups, we can conclude that some prayers have been answered. Keep reading to find out how D2C retailing will benefit!

Since 2021, Indian D2C startups have secured $5 billion in funding across 520 deals, with  87 or 16.7% of the deals made in the  first half of 2024. The funding boom has benefitted eyewear brand Lenskart, meat delivery service Licious and The Good Glam Group, in addition to other key players such as boAt, SUGAR cosmetics and FreshToHome. The cash infusion is helping several D2C brands to amplify their presence.

Manufacturing

Under the indirect tax proposal, the budget 2023 will drive export competitiveness and domestic value addition through the Phased Manufacturing program. The measures instituted include

1. Simplified tax structures to improve administrative efficiency.
2. Reduction to the basic custom duties, cesses and surcharges on items such as toys, cycle and automobiles.
3. Reduction in imports custom duty for electronic parts for mobile phones, laptops and camera lenses.
4. Lowered tax rates of 15% for new cooperatives commencing manufacturing activities till March 31 2024.
5. To further provide impetus to green mobility, customs duty exemption is being extended to import of capital goods and machinery required for manufacture of lithium-ion cells for batteries used in electric vehicles. 

GST relaxations for small online businesses

The revision in tax slabs will favor SMEs by lowering the GST and taxes on startups on logistics.  With the implementation of the National Logistics Policy from Sept 2022 onwards, it is expected that logistics costs (currently one of the highest in the world) will come down.  GST relaxation norms will also elevate the figures for eCommerce market penetration from single digits to double digits, as more small business owners are invited to realize their potential.  

eCommerce export hubs

Further developments to eCommerce export hubs will boost D2C growth sectorally by making artisans and MSMEs more globally visible and reachable across borders. Indian brands can access and tap into newer markets and help native players showcase their innovative spirit.

Revamping the credit guarantee scheme

In the endeavor to support micro, small and medium enterprises, the central government has promised to lower the cost of collateral-free guaranteed credit by 1% and revamp the credit guarantee scheme with a cash infusion of INR 9,000 crores. This will be effective from  1st April 2023. 

MSMEs and professionals with a turnover of up to INR 2 crores and INR 50 Lakhs can benefit from presumptive taxation. Those taxpayers whose cash receipts do not exceed 5% will be provided enhanced limits of INR 3Cr and INR 75 lakhs respectively. Deductions on expenditures arising from payments will be levied only when the actual payment is made. This news comes as a relief to new entrepreneurs entering the fray.

Linking microenterprises to ECOs

Amendments to sections 10 and 122 of the CGST Act will now enable unregistered suppliers to make intra-state supply of goods through eCommerce operators (ECOs) 

Infrastructure investment from private players

The implementation of the National Logistics Policy from September 2022 onwards promises greater connectivity by air, road and rail, thereby strengthening the distribution network. The GOI can leverage the unbeaten reach of India Post and Indian railways to help small and medium-sized D2C businesses meet the demand surge coming in from Tier 2 and 3 towns. The newly formed Infrastructure Finance Secretariat will invite private assistance in funding urban infrastructure and power which rely on public resources.  

To this end, a capital outlay of INR 2.40 lakh crore has been set aside for the Railways, which is 9x more than the outlay in FY 2013-14. 

About a 100 critical transportation projects for first and last-mile connectivity have been identified, with 20% of the ~75K crore investment needed coming from private investors. Additionally, 50 more airports, heliports and advanced landing terrain will be created to improve connectivity by air.

Trust-based Governance

The GOI has introduced the Jan Vishwas Bill, which amends 42 central acts, removes 39K compliances and decriminalizes 3K+ legal provisions. Furthermore, the KYC process will follow a risk-based approach, switching up from a one-size-fits-all, with the PAN continuing to remain the common identifier across digital systems for specific government bodies. 

Promoting Local Handicrafts

The PM Vikas scheme aims to expand the reach and visibility of traditional handicrafts by integrating them into the MSME value chain. The scheme will provide financial support, skills training, promotion and links to digital payments to connect consumers to artists. 

Green Growth

India is moving towards achieving a net-zero carbon emission by 2070. With this in mind, the Honorable PM has launched green initiatives such as the Green Credit Programme which incentivizes environmentally sustainable actions and responses by D2C companies. Sustainable D2C brands are expected to benefit from the government’s support. 

Green growth will promote energy efficiency and resource utilization across farming, infrastructure and equipment across several economic sectors. 

The takeaway

As demand for DTC products and services grow, the provisions under the Union Budget 2023 will greatly encourage the D2C sector to flourish. Investments towards improving and expanding last-mile connectivity will unlock more pin codes for brands to serve,particularly in non-metro areas. Going digital-first will open up several more touchpoints for brands to connect with customers, driving up acquisition, satisfaction and retention. . 

FAQS
‍

1. What are D2C brands expecting from Budget 2023?

Founders of Indian-based D2C brands, most notably WoW Skin Science and Earth Rhythm have advocated for

1.  Tax break and improved taxation system to promote investment opportunities.
2. Upgrading the manufacturing capacity with subsidized loans for home-grown brands.
3. Reductions in income tax to maximize disposable income and strengthen the spending power for consumers. 

2. How many D2C brands are there in India?

There are ~600 native D2C brands that sell across their website and online marketplaces, with several planning offline store launches to expand reach in Tier-2 and 3 towns in the bid to meet the growth in consumer traffic.

3. What are examples of a D2C brand?

D2C brands retail across several categories such as FMCG, petcare, beauty and healthcare, and include unicorns such as Nykaa, MamaEarth and Licious, and fast-growing brands such as Pilgrim and Almo, and newcomers such as Tiggle and Wiggles.

‍