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FMCG firms pin hopes on new govt's rural reforms for demand revival

Most CEOs say farm incomes will have to improve for demand to make its way back

FMCG
Q4 numbers of most FMCG and retail firms have been weak as they show signs of stress

The Narendra Modi government, voted back to power last week, will take oath amid a consumer slowdown in staples and discretionary categories. Billed as the worst in two years, chief executive officers (CEOs) of retail and fast-moving consumer goods companies (FMCG) say that the government will have to hit the ground running if it wishes to contain the damage. 

Already, Q4 numbers of most FMCG and retail firms have been weak as they show signs of stress. Rural sales growth, which was ahead of urban sales growth by at least 100 to 200 basis points for most companies over the past few quarters, has now moderated, data by market research agency Nielsen shows.

“Rural incomes have to rise, so that the consumption slowdown in these markets is addressed,” says Kishore Biyani, founder and chief executive officer, Future Group. “A revival package for rural areas will help and with a stable government in power, I think, a lot can happen,” he says.

Suresh Narayanan, chairman and managing director, Nestle India, says, “India has consistently posted stable growth in the past few years with low inflation. However, with inflationary pressures now growing and the forecast of a below-normal monsoon, farm incomes will be affected. Giving an impetus to rural households is the need of the hour.”

Nielsen has already lowered its growth forecast for the 2019 calendar year by 200 basis points for the domestic consumer goods market, saying sentiment remains weak.

The agency also says the categories that have been impacted the most due to the slowdown include food and personal care. While value growth of food and personal care in calendar year 2018 was 15 per cent and 12 per cent, respectively, this is expected to moderate to 13 per cent and 11 per cent each in the current calendar year, it said.

“A stable government is welcome for the nation and economy. We hope in its second term, the government will usher in the next phase of reforms. In sectors that contribute significantly to state GDP (such as beverage alcohol), we look towards the federal government to encourage states to bring about comprehensive regulatory reform,” Anand Kripalu, managing director and chief executive officer, Diageo India, said.

Sunil D’souza, managing director, Whirlpool India, says, “While in the short term we expect to see stronger market sentiment and renewed consumer confidence, in the longer term the continued thrust on reform and growth bodes well for the consumer story in India.”

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In its first term, the Modi government had kicked off welfare measures such as the PM-Kisan scheme. It had increased the minimum support price of crops and worked to improve infrastructure, electrification and irrigation in rural areas. While the rural welfare schemes are welcome, some chief executive officers and corporate executives say there is need to monitor their outcomes closely.

Lalit Malik, chief financial officer, Dabur India, says, “The government should ensure that the fiscal incentives reach rural consumers, so that purchasing power improves. The focus should also be on employment creation, which will go a long way in accelerating consumer demand.”

Adi Godrej, chairman, Godrej group, says, “GDP growth is what the government should concentrate its attention on. Because growth will bring jobs, improve incomes and spending power. It will also help address distress, especially in rural areas and bring about some revival in those markets.”

Harsh Mariwala, chairman, Marico, says, “I believe the focus should be on implementing difficult reforms such as land, labour and agricultural reforms. The government did not move strongly in these areas during its first term, priorities will have to change during its second term.”