One year of demonetisation: Consumer goods put through the wringer

Rarely has the consumer market in India witnessed the duress it had to undergo a year ago. With close to 86 per cent of currency notes in circulation turning defunct overnight, activities came to a halt abruptly — a nightmare for an economy that draws strength from consumption-led growth. 

Since then much water has flown under the bridge, but the introduction of a new indirect tax structure continues to jeopardise market dynamics and disrupt business. A green shoot is, however, visible as consumer demand, of late, has improved.

It took nearly four months for the consumer goods sector to regain its lost momentum since the demonetisation of two high-value currency notes on November 8 last year. The timing of the note ban was a rude shock for the market, as it was expecting a demand recovery in September and October 2016. 

However, it is the implementation of the goods and services tax (GST) that continues to haunt the sector. A massive destocking of inventories for all sections of the trade and manufacturers in fast-moving consumer goods, consumer durables, and the mobile handsets industry during June this year, left businesses high and dry. Companies that Business Standard spoke to said the GST glitches might take longer to be addressed as a section of the trade was yet to comply with it.

According to Mayank Shah, category head, Parle Products, the makers of Parle-G biscuits, wholesale trade, which accounts for close to 40 per cent of the business, has big issues in coping with the GST. To break the impasse, companies like Dabur are encouraging stockists to cater to markets in the hinterlands. The firm is rapidly expanding its sales team to double its strength as it plans to increase direct control over the market.

“Another basic fact that has changed due to the GST is that the trade will never again hold the inventory level that it used to operate earlier. After the destocking exercise, everyone has now realised that they can still do business with less stock,” said Mathew Job, chief executive officer, Crompton Greaves Consumer Electricals.

While the demand scenario worsened considerably and companies registered loss of sales due to the two policy moves, growth numbers since June this year have revived hopes of a recovery. 

During the April-June quarter, sales volume grew close to 14 per cent, the highest in the last two years. Growth numbers by Nielsen sourced from the industry show that the growth in rural markets during August-September was in the range of 12-13 per cent, compared with less than 10 per cent in urban markets. This is due to a better monsoon and recovery of supply to the rural market after a blip during July as the wholesale trade suffered, say companies.

The two beverage giants, Coca-Cola and PepsiCo, observed a recovery of sales during the September quarter. Coke posted six per cent growth in volumes after a few quarters of declines. Its global CEO, James Quincey, said, Coke’s “business successfully moved past the recent difficulties related to demonetisation and implementation of the GST during the first half of the year”.

“In the South Asian subcontinent — India, Pakistan, Nepal, Sri Lanka — we face the normal upheavals from the GST, the demonetisation — or remonetisation, I should say. We are through all that now. And hopefully, the business will start to steadily recover in India,” Indra Nooyi, global chairperson and CEO of PepsiCo, told investors in October.

The rapidly growing mobile handsets market, too, saw a significant uptick in sentiment among vendors as they rushed to import a record 80 million devices during the September quarter in anticipation of bumper sales during the festive season.

Executives, however, say it is too early to conclude that the sector has recovered completely and the picture may become clearer by the first quarter of 2018-19.