Consumer goods makers pin hopes on 2018 to erase woes of 2017
The fast-moving consumer goods (FMCG) firms had a lacklustre 2017 due to GST implementation and lingering effects of demonetisation
New Delhi: Packaged goods companies and makers of consumer durables have pinned their hopes on 2018 for a revival in demand as the market recovers from the initial hiccups that followed the implementation of the goods and services tax (GST), the country’s biggest indirect tax reform.
Consumer-facing firms suffered through 2017 as the first half went in tackling the after-effects of demonetisation—the invalidation of high-value banknotes announced on 8 November 2016—which suddenly took 86% of the currency out of circulation, leaving cash-dependent Indians with little in hand to spend, besides choking wholesale trade. On 1 July 2017, GST was rolled out. Its implementation required massive destocking of inventory in various sectors including packaged consumer goods and durables in the run-up to the roll out.
In the short term, both demonetisation and GST impacted wholesale trade because of issues related to execution, and led to massive destocking across trade channels, said Lalit Malik, chief financial officer, Dabur India Ltd. “While the urban markets, particularly modern trade and distributors, remained somewhat resilient to demonetisation and reported growth, rural demand—for lack of cash—was hit hard during the early part of 2017,” he added.
Packaged goods makers, however, have started seeing “a revival in demand and consumption”, led by a rural market surge on the back of a good monsoon last year. “With market sentiment showing signs of improvement and stability returning post-GST, we expect the demand scenario to move up, both in rural and urban markets,” Malik said.
While a spokesperson at Swiss packaged food company Nestle India Ltd said the company was confident about stronger growth in 2018, American beverage maker Coca-Cola India’s spokesperson said aerated beverages companies would have “preferred a lower rate”.
However, the Coca-Cola India spokesperson said the company was focused on “managing business with the applicable tax, taking advantage of the efficiencies it will generate”.
Consumer durables makers echoed the sentiment. “We went through some ups and downs, given the two major reforms of demonetisation and GST during the year. Both these reforms, while being in the right direction from a long-term perspective for the economy, did have some short-term impact on the economy and the industry,” said Sunil D’Souza, managing director, Whirlpool India Ltd. He added that the recent figures and trends indicate that the industry is again poised for “acceleration on the economic front” and remains “bullish about prospects”.
Usha International chief executive Dinesh Chhabra said the company has started witnessing double digit growth across all product categories in the last two quarters. “Industry outlook is positive for 2018 and we expect that Usha will surpass the growth we had seen annually in the last three years,” he added.
The government’s 15 December decision to raise import duty on a bunch of electronic products such as television sets, digital cameras, microwave ovens and mobile phones by 5-10 percentage points and the consequent increase in prices could have some impact on the consumer durables industry, especially on those companies and categories which depend heavily on imports and do not have production or assembling units in India. The industry is also pinning its hopes on more sops and government spending on infrastructure and development projects putting more cash in people’s hands, especially in the rural markets, which could potentially translate into consumer spending.
Given that assembly elections in several states are due in 2018 and the general election the year after, there could be a host of incentives or populist steps by the government, which could spur revival in demand and consumption.