Home > Budget 2019 > Budget Expectations > Improving rural income key to shoring up demand in consumer goods sector
Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

Improving rural income key to shoring up demand in consumer goods sector

In the budget, FMCG firms are gunning for schemes directed at reviving farm income, reduction in income taxes and job creation

NEW DELHI : Consumer goods companies are pinning their hopes on schemes directed at reviving farm income, investments in rural infrastructure, and reduction in personal income taxes in the forthcoming budget to boost consumer demand in Asia’s third-largest economy.

Companies have doled out offers and freebies over the past few quarters to revive demand, as slower economic growth have left Indian households with less money to spend on products such as packaged foods, soaps, and television sets.

Earlier this week, market researcher Nielsen said that India’s fast-moving consumer goods (FMCG) industry grew 9.7% in 2019, but rural growth slipped to a multi-year low.

“The government should be looking at ways to improve rural income. Ideally, there should be more focus on MGNREGA (the rural employment guarantee scheme). Moreover, there needs to be greater allocation towards rural infrastructure, which will also put more money in the hands of the rural consumers," said Mayank Shah, category head at snacks maker Parle Products.

Reeling under demand slump
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Reeling under demand slump

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Parle, which makes the country’s largest selling biscuit brand Parle-G, saw demand for its biscuits in India’s villages dip significantly during the year. Historically, for FMCG companies, rural markets, which contribute more than 35% of all FMCG sales, have grown ahead of urban markets.

Finance minister Nirmala Sitharaman is expected to announce the 2020 budget on 1 February. All eyes will be on the government’s efforts to revive demand, which has been cooling off with respect to products ranging from automobiles to packaged foods to personal care items. This is especially true in rural markets where stagnant wages, falling crop prices, and erratic rainfall have reduced the propensity of rural households to spend freely.

In a news report in the Hindustan Times newspaper earlier this week, the forthcoming budget could see a 15% jump in funds allocated towards transforming India’s villages, especially for boosting income for small and marginal farmers. For FMCG companies, which posted one of their lowest quarterly growth rates in rural India in 2019, the move could bring some big relief.

Companies also hope the government will announce some measures to help them navigate the recent curbs on palm oil imports from Malaysia. “The spiralling commodity prices are putting a huge pressure on the cost of ingredients," said Subhashish Basu, chief operating officer at Indore-based Prataap Snacks. Import curbs on palm oil from a specific country has put huge pressure on price, said Basu. That’s a body blow to the processed food industry.

Shah said he is also pitching for relief in personal tax slabs. This, he said, has been long pending. Last year, the government slashed corporate tax rates for companies providing huge relief for large and small businesses.

“If the personal income-tax slab reduces, consumption will improve automatically. Changes in personal taxes has been on the cards for quite some time," said Nilesh Gupta, managing director, at electronics store chain Vijay Sales.

Consumer durables firms say they are also gunning for a lower rate of goods and services tax (GST), especially in categories such as large-screen television sets and air conditioners, which at present attract 28% tax. Lower GST on electronics will help the industry clock faster growth rates, especially in a market where penetration of household appliances is still low.

“The consumer appliances industry witnessed flat growth over the last two years and we urge the government to continue in the trajectory of positive policies to lend support and drive growth in the sector," said Manish Sharma, president and chief executive officer, Panasonic India and South Asia.

Products such as air conditioners, refrigerators, washing machines, and television have become a necessity among Indian households, so a “reduction in GST for TV and refrigerators will help reduce costs for you and drive further penetration of these products," he said. Gupta too rallied for doing away with a 28% tax slab for large screen TV sets.

The government needs to do more to create large-scale employment especially in smaller cities and villages, said Rajat Wahi, partner, Deloitte India. “The main thing is to drive consumption, get consumers to spend more. The key thing has to be the focus on ease of doing business. The way forward is to invite companies, get them land easily, and ease labour reforms so they can set up plants," he said. This will help shore up investments and provide employment.

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