Budget gives FMCG sector hope for consumption recovery in the long-term

With the government placing its bet on the infrastructure development, the country’s fast moving consumer goods (FMCG) companies are pinning their hopes on a long-term recovery. As the Union Budget skipped any direct measure to boost consumption in the short-run, the makers of the consumer staples like potato chips, shampoo and ready-to-drink beverages now expect a slow but steady improvement in their volume uptakes.

The country’s leading FMCG players like ITC, Marico, Dabur and PepsiCo, among others, are taking some respite from the fact that the record fund allocation in infrastructure development has potential to create jobs and pump in money into the rural economy that may lift the consumption levels in coming years.

According to Sanjiv Puri, Chairman, ITC, the measures announced in yesterday’s Budget for FY2022-23 will address key issues of livelihood generation by enhancing farmer incomes. “The substantive enhancement of public expenditure will create a multiplier impact on growth and competitiveness. The multi-dimensional interventions to usher in Next Generation Agriculture through digitalisation, R&D, leveraging strengths of agri-techs and FPOs, will transform the agri sector,” he said.

Saugata Gupta, MD and CEO at Marico said,  “With this Union Budget, the government has laid out a growth oriented, future focused blueprint for India. By prioritising job creation, infrastructure growth and strengthening digital capabilities while making ‘inclusive development’ and ‘financing of investments’ two of the key focal points of the Budget,  the government is successfully laying the groundwork for faster financial inclusion and expansion of the credit ecosystem.”
 
According to Suresh Narayanan, chairman of CII’s national committee on food processing industries and managing director, Nestle India, the announcement to partner with states, for adoption of suitable varieties of fruits and vegetables for food processing would help boost exports.

Ahmed ElSheikh, President of PepsiCo India is optimistic about the increased outlay for PM GatiShakti projects for multi-modal connectivity. According to him, raising public sector spending will keep the economic recovery on track, while “digitisation combined with infrastructural creation will accelerate economic development, stimulate innovation and entrepreneurship enhance living standards. The 100 new railways logistics hubs coupled with steps like enhancing local oilseed production, extending the last date for starting production for new manufacturing units, encouraging alternate cropping will aid growth of the FMCG sector and further strengthen Govt’s vision of an Atmanirbhar Bharat,” he said.

The Budget announcements came at a time, when he FMCG makers are grappling with poor volume uptake, especially in the rural areas. While the urban market growth rate had fallen steadily between 2019 and 2020, the rural market was growing faster - at about 6-8 per cent by volume - till end-2020. However, as record high commodity inflations pushed the prices of packaged goods out of reach for the price sensitive consumers, volume growth fell sharply since. In fact, data from market research firm Nielsen shows, the rural market shrank by volume in the October-December quarter - first time in years. This has put most FMCG majors in a sticky ground as urban volume sales were already suffering and rural market contributes 25-40 per cent towards their top-line.

According to Aditya Agarwal, Director at Emami Group, the government now needs to reinstate the import duty difference between refined palm oil and crude palm oil back to 11 per cent from the current 5.5 per cent to keep the domestic industry viable.

Gupta from Marico said, the government “has undertaken some key initiatives targeted towards credit growth, farmer welfare, improving the health and education infrastructure, digital currencies and start-ups which will benefit young aspirational Indians. If executed well, the budget will trigger the virtuous cycle of economic growth and employment creation, leading to momentum in growth.”