FMCG expects demand recovery in FY18

Consumer goods companies in the country are hoping to witness the much anticipated spurt in demand once initiatives announced in the Union Budget for 2017-18 kick in. The thrust on infrastructure development, lower taxes for medium and small enterprises, and lesser income tax for lower middle-class households will impact demand growth for consumer good items, industry leaders said.

Varun Berry, managing director, Britannia Industries, said, “The Budget has focused on driving the rural economy with some well-structured consumption boosting measures and programmes. Strong rural demand and consumption is core to the success of many consumer businesses. We have not seen a sustained uptick in demand for a long time.”

Poor volume growth in the sector has been a major roadblock for most consumer goods company in the country for the past few quarters, which worsened after demonetisation in November last year. 

While the rate of growth was higher in the rural market compared to urban areas during January- September 2016, it still remained in the mid-single digits. As nearly 70 per cent of the population resides in rural areas, which contribute to about one-third the total sales of the fast-moving consumer goods sector, 5-6 per cent growth was below expectations.

“The Budget proposals to increase spending in rural areas, infrastructure development, poverty alleviation as well as the agricultural sector should provide a growth impetus to the Indian economy and a pickup in consumption demand,” said YC Deveshwar, chairman, ITC.

According Sunil Duggal, chief executive officer, Dabur India, higher allocation for MGNREGA and for improving road connectivity through development of highways will be beneficial for consumer goods firms. “I feel the Budget is strongly positive for rural consumption. All the triggers are in place for rural consumption to revive strongly over the next couple of months. We are hopeful of seeing a demand revival and regaining some of the lost business in the rural markets. With higher investments on infrastructure, connectivity to the hinterland will also improve and enable us to supply products to the rural markets much more efficiently than before,” he said.  “The reduction of direct tax for individuals earning less than Rs5 lakh, too, will increase disposable income and drive demand for mass products”, said Vivek Gambhir, MD, Godrej Consumer Products Ltd. 

According to him, while the proposed spending on women and child development will drive equitable growth, lower taxes for the MSME sector “should spur much-needed job creation”.

Consumer durable companies are relatively less dependent on the rural market, as approximately 25 per cent of their revenue comes from there, and are also hopeful that the proposed measures will help the market to grow faster.

“Infrastructure remains one of the primary concerns for manufacturers and announcement of new projects will certainly boost investors’ confidence in India. Further, the government’s focus on the rural sector deserves praise as overall development is the need of the hour. The finance minister has promised 100 per cent rural electrification by May 1, 2018. This will significantly influence the consumer durables industry in India, increasing the penetration,” said Amit Gujral, head of corporate marketing, LG India.

According to Anirudh Dhoot, director, Videocon, increased allocation towards schemes like M-SIPS and the Electronic Development Fund (EDF) will help the sector as local manufacturing will get a leg up.

“Higher allocation for development of roadways, micro-irrigation and the  dairy sector will improve incomes of rural households. There is a strong push to strengthen lower middle-class and rural consumption”, said Rajat Wahi, partner and head, consumer, retail and agri sector, KPMG in India.