Consumer goods companies have indicated that, while the interim budget may not promptly initiate a consumption revival, an enhanced emphasis on rural housing and post-harvest activities could potentially stimulate demand for daily household products and groceries in villages over the long term.
The overall growth of the fast-moving consumer goods segment has been hampered by sluggish demand in rural markets for the past two years. Companies suggest that rather than relying on budget incentives, a normal monsoon and a successful harvest could accelerate the recovery of rural areas.
“The budget was not a booster dose to recover things immediately, but more of a vision on how the economy will shape up in the next five years,” said Angshu Mallick, chief executive of edible oil major Adani Wilmar.
“Rural income recovery in the short term will be dependent on agriculture production and this year’s monsoon,” he added.
In the last ten years, the sales of branded daily necessities in the country of 1.4 billion people have become increasingly dependent on rural India. With over 800 million residents, the purchasing patterns in rural areas are closely tied to agricultural output. For instance, the rural regions, constituting nearly 40% of the entire FMCG market, experienced a significant decline in demand for a year, attributed to inflation and unpredictable monsoons.
Finance Minister Nirmala Sitharaman stated that they are close to achieving the target of three crore under the rural housing scheme. Additionally, two crore more houses are planned for construction in the next five years under Pradhan Mantri Awas Yojna – Gramin. Consumer goods companies believe that rural income will improve in the mid-to-long term.
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B Krishna Rao, senior category head at Parle Products, mentioned that the interim budget has addressed nearly all consumption classes in rural India, including agriculture, dairy farmers, and women. However, he emphasized that it will take some time for real income to increase as these measures require time for implementation.
“These will result in consumption increase in the next 2-5 years,” he said.
The budget also presented a broad framework for amplifying government spending across various schemes targeting farmers, women, self-help groups, and youth. Furthermore, there is a proposal to augment the allocation for programs like the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA). In the upcoming fiscal year 2024-25, the allocation under MGNREGA is set to increase by 43%, reaching INR 86,000 crore.
Aasif Malbari, the Chief Financial Officer at Godrej Consumer Products, expressed positivity about the interim budget’s commitment to fiscal consolidation. He sees it as a favorable indicator for overall economic growth, anticipating a potential boost to consumption patterns in the long term. Malbari also noted that the emphasis on improving connectivity and infrastructure is advantageous for the FMCG sector.
Sales of items such as refrigerators, washing machines, and televisions also rely on rural areas, accounting for approximately 30-40% of the overall market share.
Kamal Nandi, the business head of Godrej Appliances, stated that the interim budget has set the groundwork for enhancing rural income and discretionary spending in the medium to long term.
“At present, inflation is affecting discretionary spending where some actions would have helped,” he said.
While rural demand, which was previously growing at twice the rate of urban areas, experienced a decline last year, it is still growing at a slower pace compared to cities. For instance, during the quarter ending in December, the rural market expanded by 1%, whereas urban areas witnessed a 3% growth in terms of volume, reflecting the actual number of products people added to their shopping baskets.
Roosevelt Dsouza, Head of Customer Success for India at NielsenIQ, an FMCG industry researcher, expressed that initiatives providing free food for rural India and employment opportunities have the potential to raise disposable incomes, consequently leading to an increase in expenditures on discretionary products.
“The emphasis on improved living standards through initiatives in housing, education, tourism, and loan schemes underscores a dedicated focus on consumer and industrial upliftment. The substantial increase in capital expenditure is poised to enhance existing infrastructure, stimulating production and generating employment opportunities in both urban and rural India,” said Dsouza.
Dsouza mentioned that the FMCG industry, especially in the food sector, received positive backing with plans aimed at achieving self-sufficiency in oilseeds. According to him, this could influence edible oil prices and consumption patterns.
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