Budget 2024: FMCG sector seeks more spending in rural areas to push demand

Ahead of the Union Budget, the consumer sector is calling on the govt to enhance both rural and urban infra, create a more business-friendly environment, and prioritise measures to boost demand

In the lead-up to the Union Budget, the consumer sector is anticipating announcements that will drive rural growth. Over the past few months, the rural sector has already begun to show signs of increasing demand.

Besides, the consumer sector is also advocating for heightened spending in rural areas, particularly in infrastructure and agriculture, to revitalise the economy. “As we look forward to the Union Budget 2024, we expect measures that will promote sustainable and inclusive growth while addressing inflation. This will be the first Budget of Prime Minister Narendra Modi's third term in office, presenting an opportunity to prioritise long-term, inclusive development. The recent signs of recovery in rural demand, especially in the FMCG sector, highlight the potential of these markets, driven by improved infrastructure, electrification, and digital connectivity,” Aasif Malbari, CFO of Godrej Consumer Products, told Business Standard.

He also said that the Budget should prioritise rural job creation, incentivise capital expenditure, and foster innovation. "In line with the 'India@100 Vision', substantial resources should be allocated to support exports and job creation in both rural and urban sectors. This will enhance local production and contribute to building a resilient, inclusive economy,” Malbari added. “For FMCG companies, expanding rural outreach through direct distribution and engagement strategies will be essential. By addressing the evolving needs of rural consumers, we can drive growth and significantly contribute to India's overall economic resilience,” he continued.

Meanwhile, Mayank Shah, Vice President at Parle Products, which manufactures biscuits such as Hide & Seek and Parle G, highlighted the need for increased funding for MNREGA and a rise in spending on rural infrastructure. “This translates into more money in the hands of consumers and helps to kick-start the economy. Additionally, investments in agriculture bolster the rural economy, which in turn stimulates consumption,” said Shah. He also noted that job creation is necessary in both rural and urban India, with an emphasis on increasing spending on urban infrastructure, as job creation also enhances demand within the sector.

Echoing the sentiment, Manish Aggarwal, Director at Bikano, Bikanervala Foods, said, “We seek solutions to immediate economic challenges and initiatives for sustainable growth, including proactive measures to control inflation, stimulate overall consumption, and incentivise capital expenditure, innovation, research, and development.”

He added, “We stress the importance of schemes to enhance rural consumption. We also anticipate policies to protect oilseed farmers and the oleochemical industry. Moreover, we expect the government's focus on capital expenditure and private-sector manufacturing and services to drive income generation and economic activity. Increasing funding for the agriculture accelerator fund is crucial for improving farming practices through new technology and better storage solutions, benefiting both farmers and the FMCG sector.”

Notably, the rural market has posed challenges for the FMCG sector. However, easing inflation and declining commodity prices have led rural markets to outperform urban counterparts. According to a report from NIQ dated May, India's FMCG sector witnessed rural consumption growth in volume terms outpacing urban consumption for the first time in five quarters during the January-March period.

The report indicated that rural consumption grew at a rate of 7.6 per cent year-on-year in Q1CY24, surpassing urban consumption, which stood at 5.7 per cent. This represented a significant shift from Q4CY23, when rural volume growth was at 5.8 per cent, while urban consumption was higher at 6.9 per cent.

For B Thiagarajan, Managing Director of Blue Star, a well-known consumer electronics brand, the forthcoming Budget should focus on manufacturing. “This will aid in creating more jobs in the country and also spur consumption. We hope the government extends the Production Linked Incentive (PLI) scheme for critical components like compressors and microprocessors. Investments in the AC industry have benefited from PLIs, and we hope these are extended. We remain heavily reliant on China, and an extension will significantly contribute to making the industry self-reliant,” he added.

The AC industry has experienced substantial growth this summer, with Blue Star achieving over 50 per cent growth during the April-June period. “Last year, 10 million units of air conditioners were sold in the market. This year, the industry expects to sell 11.5 million units,” Ajay DD Singhania, Managing Director and Chief Executive Officer (CEO) of Epack Durable, told Business Standard previously.

“Among other priorities for the upcoming Budget, we look for stable import duties on components and a push towards innovation and research that will enhance our global competitiveness. While the government's infrastructure push is likely to continue, we also hope to see an emphasis on social infrastructure such as hotels that create jobs and improve the ease of doing business,” he added.