New Delhi: The government's 16-point agenda for India’s agriculture sector could help lift demand for fast moving consumer goods in India’s villages.
On Saturday, finance minister Nirmala Sitharaman, while tabling the Union Budget for 2020-21 in the Lok Sabh, set aside a total of Rs1.6 lakh crore for the agriculture sector for FY21. In addition, Rs1.23 lakh crore has been allocated for rural development, bringing the corpus to Rs2.83 lakh crore.
The move, added Sitharaman, is pointed towards the government’s earlier plan of doubling farmer incomes, providing jobs to rural youth, and boosting agriculture productivity.
The move could also bode well for makers of fast moving consumer goods that have been facing a sharp slowdown in demand in India’s villages.
Growth for goods of daily use in India’s villages that contribute to over a third of the business for FMCG firms dropped sharply from a strong 16.2% in 2018 to 8.8% in 2019, market research Nielsen said in its outlook for the sector in January.
The sector has been facing headwinds over the last few quarters, including rural job losses and stagnating wages, besides an erratic monsoon, which led to consumers in India’s hinterland drastically cutting back on their monthly household expenses. This has dragged volume growth for consumer goods companies such as Hindustan Unilever, Godrej Consumer Products and Marico, among others.
In the fourth quarter, the FMCG industry grew at 7.3%, a sharp drop from the high double-digit growth it registered in the year-ago period. Demand was especially sluggish with urban India registering 7.4% growth in Q4, down from 14% in the year-ago period. In Q4, rural markets grew by 5.2%, down from 18% in the December quarter of 2018.
On Saturday, shares of some consumer goods firm such as ITC Ltd that sells Sunfeast cookies, and Aashirwad flour were up 1% on the BSE. Hindustan Unilever jumped 1.26% a day after it announced 5% volume growth in the December quarter. Dabur India Ltd surged 3.4%.