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Rural markets that contribute 36% to overall FMCG spending have been slowing down for the past couple of years, now aggravated by the pandemic. (Photo: Indranil Bhoumik/Mint)
Rural markets that contribute 36% to overall FMCG spending have been slowing down for the past couple of years, now aggravated by the pandemic. (Photo: Indranil Bhoumik/Mint)

Consumer goods firms pin hopes on more funds for rural jobs scheme

  • FMCG companies are hoping that the extra money in the hands of the rural consumer could help boost demand
  • Many experts have argued that measures announced pay little attention to immediate demand revival

NEW DELHI: The Centre's move to allocate additional funds to the rural jobs programme could help provide a cushion to rural demand that is expected to sink further as the pandemic wreaks havoc with rural wages and renders millions of migrants without jobs.

Fast moving consumer goods companies are hoping that the additional money in the hands of the rural consumer could help boost rural demand. On Sunday, finance minister Nirmala Sitharaman announced an injection of 40,000 crore to the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) to enable people in rural India, including millions returning home from urban areas to their villages, find jobs.

With a Budget allocation of 61,000 crore announced in the Budget, the allocation to the scheme now stands at 1.01 crore, the highest ever for the programme.

Dabur India Ltd chief executive officer Mohit Malhotra said the finance minister’s final tranche of the economic package would lead to creation of more jobs in the hinterland and ease the distress of migrant workers returning home.

"The government’s decision to allocate additional 40,000 crore for the MGNREGS scheme would certainly put more money in the hands of rural consumers and spur consumption in rural markets. Allowing private investments in all sectors is another positive move that would lead to job creation," he said.

Angshu Mallick, deputy CEO at Adani Wilmar Ltd, the maker of the Fortune brand of edible oil and other packaged food, said that the additional allocation will surely put more cash in the hands of migrant labourers and small farmers. “This money will bring more liquidity and lead to demand in groceries and FMCG products except dal, wheat and rice because the government has agreed to give free rations for three months and further two months so there is enough availability of rice, wheat and pulses," he said.

Abneesh Roy, executive vice president (research) at Edelweiss Securities, also sees the move as a “positive" for consumer staples companies. “This would stimulate demand," he said.

Anil Talreja, partner and leader consumer business, said the allocation to MNREGA is one of the ways whereby the government intends to go to the root of the rural market and provide the fuel for development and growth.

"This is the heart of India as it is very closely associated with agriculture, which comprises a significant portion of our economy. The benefits announced under this scheme will certainly charge up the rural sections of the society and benefit to the much needy and poor," Talreja said.

Rural markets that contribute 36% to overall FMCG spending have been slowing down for the past couple of years. For the first time in the last seven years, rural growth dropped below urban, according to Nielsen’s July-September 2019 update. And just when things looked to be improving earlier this year, the covid-19 outbreak has set the markets back again with Nielsen refraining giving any projections for rural demand for the year.

To be sure, many experts argue that the government has announced several long-term reforms with little attention to immediate demand revival.

“Companies would have preferred if direct cash transfer would have happened because many of them (rural and migrant workers) have not been paid by employers for the last 2-3 months; they need cash in hand. The need of the hour was direct transfer into their accounts. They have no money. If you give them money let them decide what they need. Not sure if this will lead to demand in rural areas," said Arvind Mediratta, managing director and chief executive officer at the local arm of German retailer Metro Cash & Carry, which runs 27 wholesale stores in the country.

Added Adani’s Mallick, “One big negative for the industry is that these migrant labourers are not going to return to their original work place fast, leading to shortage of skilled and unskilled labourers."

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