Consumption-investment cycle needs to improve, say FMCG CEOs and veterans

Call for rural stimulus package and better transmission of RBI's interest rate cuts

A cross-spectrum of chief executive officers (CEOs) and veterans from the fast-moving consumer goods (FMCG) industry are voicing concern over the slowdown in demand in the market, saying a stimulus package in rural areas and better transmission of interest rates will help.

Godrej Group Chairman Adi Godrej and Marico’s Chairman Harsh Mariwala insist the focus of the government should be on economic revival at a time when the country’s central bank has lowered the fiscal 2020 GDP growth rate to 6.9 per cent from 7 per cent estimated earlier.

Adi Godrej and ITC Chairman Sanjiv Puri were in Delhi last week to meet Finance Minister Nirmala Sitharaman as part of an outreach programme initiated by the government to tackle the slowdown. 

Godrej said, “The Budget did not have too many provisions for economic revival. I did not see much GDP growth orientation for the financial year. The focus must go back to it.”

“If the economy improves there will be investment made by companies, aiding job creation, which will put money in the hands of people, improving sentiment and therefore demand,” Mariwala said.

An ITC spokesperson said, “It is imperative to accelerate a virtuous cycle of consumption and investment to achieve higher growth rates. Agriculture employs more than 50 per cent of the workforce in India. Incomes need to be enhanced and investments channeled to sectors that leverage agri-food and wood-based value chains to create large-scale livelihoods.”

Last month, market research agency Nielsen had reduced its CY19 growth forecast for the overall FMCG market to 9-10 per cent from 11-12 per cent estimated earlier, saying rural areas were contributing 57 per cent to the slowdown. 

Nielsen also said the rural rate of growth was slowing at double that of the urban rate of growth, compounding matters for companies who have a larger presence in the hinterland. “There is a need for a stimulus package in the rural areas, since it is a key growth driver for companies. Specific measures that will put money in the hands of rural consumers will help. The government should also consider merging the 18 per and 12 per cent GST tax slabs into a common 15 per cent slab to reduce the tax burden on consumers and nudge banks for better transmission of interest rates to the corporate sector,” said C K Ranganathan, founder and chairman, CavinKare.While the government in the past has said it would like to streamline the GST tax structure, bringing down the number of items in the 28 per cent tax brackets and reducing the overall tax slabs, only the former has been undertaken so far. 

In the past two years, the GST Council has rationalised the 28 per cent tax brackets and restricted it to luxury, demerit, and sin goods, besides cement, large-screen television sets, air conditioners and dishwashers.