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Give cash in hand to push demand: FMCG Inc

Industry bats for stimulus measures such as reduction in income tax, job creation and direct incentives for rural consumers. Research firm Nielsen said in an Oct report that overall FMCG sales growth fell from 16.2% yoy in the Sept 2018 quarter to 7.3% in the Sept 2019 quarter, with rural consumption at the slowest in seven years.

, ET Bureau|
Last Updated: Jan 17, 2020, 08.05 AM IST
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Agencies
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The Indian economy is forecast to grow at 5% in FY20, the slowest in the past 11 years.
NEW DELHI: India’s fast moving consumer goods (FMCG) companies said a demand revival will depend on a stimulus package that results in people having more money to spend which could be in the form of lower income tax slabs, job creation and direct incentives for rural consumers. Finance minister Nirmala Sitharaman is scheduled to present the budget on February 1.

“Besides income tax rate cuts, rural support programmes like MGNREGS and large infra projects, including in rural India, are required,” said Varun Berry, managing director of Britannia Industries, which makes biscuits and dairy products. The Mahatma Gandhi National Rural Employment Guarantee Act ensures a minimum 100 days of paid work per year to families whose adult members opt for unskilled work. It’s regarded as the programme with the most potential to lift rural demand by executives and experts.

Sales of branded packaged goods have been muted over the past four quarters.

Govt must step up spending
Rural consumption has been further impacted by lower farm incomes and liquidity constraints amid an economic slowdown. Research firm Nielsen said in an October report that overall FMCG sales growth fell from 16.2% year-on-year in the September 2018 quarter to 7.3% in the September 2019 quarter, with rural consumption at the slowest in seven years.

Dabur India chairman Amit Burman said the government should look at reducing personal tax rates in line with the corporate tax cut. “This would put more disposable income in the pockets of consumers, thereby fuelling consumerism and boosting overall GDP growth,” he said. The maker of Vatika shampoo and Real juices derives 45-47% of domestic sales from rural markets.

Hindustan Unilever (HUL) declined to comment.

The government cut corporate tax rates in September, improving cash flow and earnings but that doesn’t translate to improved consumer demand, executives said. Rural India contributes 36% to overall FMCG spends and has been growing 3-5 percentage points faster than urban in the past decade or so, according to the Nielsen report. Top companies such as HUL, Britannia, Dabur and Marico generate a significant proportion of their sales in rural areas.

Bisleri International chairman Ramesh Chauhan said hopes for consumption recovery circle back to curbing expenditure, which would help provide for a stimulus to reverse the downturn. “Wasteful expenditure should be cut down by the government and this money should be spent on building roads, housing and new factories – that’s where job creation will come, which will fuel last-mile consumption,” he said.

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The Indian economy is forecast to grow at 5% in FY20, the slowest in the past 11 years.

“Reduction in income tax is one part which would address the taxpayer consumer base,” said EY partner and national leader, consumer products and retail, Pinakiranjan Mishra. “The other is government has to step up spending on agriculture and infra projects, which will lead to employment generation and hence demand generation.”

Last week, the World Bank lowered its growth estimate for India to 5% for the current fiscal year from the earlier 6% projection in its Global Economic Prospects report. It attributed the lowering of the forecast to lingering weakness stemming from the liquidity squeeze that has gripped nonbanking finance companies (NBFCs).

Brokerages have forecast continued subdued earnings growth for consumer-facing business in the third quarter of fiscal 2020.
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