Slower demand in rural markets has been dragging the overall growth of the fast moving consumer goods segment since the past two years and companies said a normal monsoon and a good harvest could help expedite rural recovery instead of budget sops.
“The budget was not a booster dose to recover things immediately, but more of a vision on how the economy will shape up in the next five years,” said Angshu Mallick, chief executive of edible oil major Adani Wilmar. “Rural income recovery in the short term will be dependent on agriculture production and this year’s monsoon,” he said.
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Over the past decade, sales of branded daily needs goods in the nation of 1.4 billion people have increasingly relied on rural India – home to more than 800 million people whose purchase behaviour is largely linked to farm output. For instance, rural India that accounts for nearly 40% of the overall FMCG market saw a noticeable drop in demand for a year due to inflation and erratic monsoons.
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Finance minister Nirmala Sitharaman said they are close to achieving the target of three crore under the rural housing scheme and two crore more houses would be constructed in the next five years under Pradhan Mantri Awas Yojna – Gramin. Consumer goods companies said rural income will improve in the mid-to-long term.
Packaged food maker Parle Products senior category head B Krishna Rao said the interim budget has covered almost all consumption classes in rural India such as agriculture, dairy farmers and women but it will take some time by when real income goes up since these will take time for implementation. “These will result in consumption increase in the next 2-5 years,” he said.
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The budget also laid down a broad framework for increase in government spending around various schemes covering farmers, women, self help groups and youth. It has also proposed to increase the allocation under schemes like Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA). The allocation under MGNREGA is proposed to be increased by 43% to Rs 86,000 crore in 2024-25.
Aasif Malbari, chief financial officer at Godrej Consumer Products, said continuing the path of fiscal consolidation in the interim budget is a positive sign for overall economic growth, which has the potential to boost consumption patterns in the long run. The focus on enhancing connectivity and infrastructure also bodes well for the FMCG sector, he said.
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Rural areas also contribute around 30-40% for sales of products like refrigerators, washing machines and televisions.
Appliance manufacturer Godrej Appliances business head Kamal Nandi said the interim budget has laid the framework for improvement in rural income and discretionary spending over the mid-to-long term. “At present, inflation is affecting discretionary spending where some actions would have helped,” he said.
Rural demand, which was growing twice the rate of urban areas, declined last year though is still growing slower compared to cities. For instance, the rural market expanded 1% during the quarter ended December compared to 3% in urban areas in terms of volume, which indicates the actual number of products people put in their shopping basket.
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