HomeEconomy NewsBudget 2024: What FMCG sector wants from finance minister Nirmala Sitharaman
After years of weak rural demand, high inflation and low volume growth, India’s FMCG industry is starting to see some green shoots. But the industry says a sustained revival in demand will need some help. CNBC-TV18’s Shilpa Ranipeta reports that players are looking to the Modi 3.0 government’s first budget for measures that will boost consumption, and put more money in the hands of consumers.
For several quarters, growth has remained elusive for India’s consumer companies. Rising input costs have significantly impacted margins, and high inflation has resulted in reduced spending from rural and middle-class consumers, who constitute the sector’s largest customer base.
This challenging environment has led to low single-digit volume growth. Industry players are hopeful that the government will provide income tax relief to the salaried class in the upcoming budget, which could potentially boost consumption by increasing disposable income.
Saugata Gupta, MD and CEO of Marico expressed optimism about the government’s potential measures to drive consumption. He emphasised, “I am sure there will be steps taken to drive consumption, particularly by giving relief to the salaried middle class.
The government has already taken significant steps like extending the free ration and free food grains scheme, which helps control inflation and puts money in the hands of the common man.”
Weak rural demand remains the industry’s biggest challenge. Data from market research firm NielsenIQ indicates that rural consumption declined for at least six quarters since 2021, with only a slight positive turn in the first quarter of 2023. However, a substantial revival is yet to be seen.
FMCG companies attribute this stagnation to rising food prices. They are advocating for the expansion of welfare schemes such as PM Kisan and job guarantee schemes like MNREGA.
Sudhir Sitapati, MD and CEO of Godrej Consumer Products, highlighted the need for a stimulus for rural consumers, stating, “There is a need for rural consumers to get some kind of stimulus so that the cycle kicks off. Once they get money, they start spending, and the rural economy kicks off. Over the last few years, so much work has been done on direct transfers, so something like expanding PM Kisan will be good from a consumption point of view.”
Sanjiv Puri, Chairman and MD of ITC and President of CII stressed the importance of increasing financial allocations through schemes like DBT and MNREGA and providing tax relief for those earning below ₹20 lakh.
He suggested, “Given that the cost of everything has gone up, CII is recommending that the amounts through DBT, MNREGA, and relief in income tax below Rs 20 lakh and other areas be increased. With respect to infra spends, we have recommended putting greater indexation to spends in the rural area.”
While these measures may offer short-term relief, the industry is looking for a budget that lays out a long-term roadmap for sustainable rural revival.
Sanjiv Puri further elaborated on the need for a more sustainable approach, stating, “To solve the rural angle on a more sustainable basis, the issues of agriculture and empowerment of the rural economy through skilling, etc., have to be addressed. We also need to aggressively start working on building resilience because the biggest culprit on rural incomes has been weather events.”
Saugata Gupta also underscored the importance of long-term agricultural productivity improvements, mentioning, “There have to be steps to improve long-term agricultural productivity. The government is also encouraging some crops like millets and maybe managing imports well – these are long-term strategic steps to manage inflation.”
Experts believe that a boost in the budget could accelerate the nascent signs of rural demand recovery. FMCG manufacturers are also advocating for measures to address employment generation through infrastructure development. They are hopeful for incentives to attract more private sector investment, possibly through more PLI schemes. This, they believe, will help create more jobs, enhance consumer sentiment, boost consumption, and drive overall economic growth.