Indian economy

Monsoon, elections and Budget raise hopes of bonanza for India’s consumer goods companies

The biggest markets for FMCGs are small towns and villages, which have seen slackened demand in recent years.

Over 65% of Indians live in villages and small towns. This demographic, the biggest market for India’s consumer companies, is now dependent on the government’s generosity for a sustained demand recovery. The fate of corporate profits in the fast-moving consumer goods space is closely tied to the political will of the state and central governments ahead of key elections.

After three bad years, India’s hinterland showed some demand recovery between June and September 2017. FMCG volume growth here stood at 13% during that period, compared to a year earlier, and was higher than the 1% rise in urban India, according to market research firm Kantar Worldpanel.

The October-December quarter numbers will be a crucial indicator of the sustainability of this revival in demand.

Meanwhile, macroeconomic indicators are not very reassuring. Rural wages are still growing at a slow pace and farmers are still distressed about crop prices. Rural areas suffered two years of insufficient rainfall in the financial years 2015 and 2016. Then, in November 2016, came the note ban, which prompted households to cut back on discretionary spending.

But there are reasons to hope for better days.

Analysts anticipate government-led economic stimulus in the poll-bound states of Karnataka, Madhya Pradesh, and Rajasthan. Given that national elections will follow in 2019, political compulsions may force even the central government to put more money in the hands of the rural consumer.

“With a few state elections and expected populist budget, rural sector is anticipated to be the prime beneficiary. This, coupled with improving macros and good monsoon after two consecutive droughts, also augurs well,” HDFC Securities said in a report dated December 27. The report anticipates that “companies with a higher exposure to rural markets can surprise on growth.”

Then, there is the recovery in trade channels.

“Post-goods and services tax, volumes of consumer goods companies, which rebounded marginally from GST-related destocking in the second quarter of the financial year 2018, are likely to revert to near normalcy,” Abneesh Roy, research analyst at Edelweiss Securities, said in a research report dated January 5. “Rural market and CSD [the defence ministry’s canteen stores department] channels are recovering, albeit at a slower pace”

India’s rural markets, which were once high-growth drivers for companies selling sachets of shampoos, detergents, and hair oils, have continued to disappoint over the last few years. Large consumer goods makers extract between 40% and 50% of their sales from rural markets.

“Consumer demand has been steadily improving over the last few months,” Vivek Gambhir, managing director of Godrej Consumer Products, told The Economic Times. “We believe that as GDP growth gets better, it should lead to even stronger growth for FMCG in 2018. In particular, we expect a stronger bounceback in rural, while seeing continued improvement in urban demand as well.”

Analysts are also in consensus. “We will again see rural volume growth for most companies being better versus the urban demand and companies are also expanding on direct reach [in these markets],” Roy said in an interview on January 9.

All eyes are now on finance minister Arun Jaitley who will present Budget 2018 on February 1.

This article first appeared on Quartz.

Support our journalism by subscribing to Scroll+ here. We welcome your comments at
Sponsored Content BY 

Do you really need to use that plastic straw?

The hazards of single-use plastic items, and what to use instead.

In June 2018, a distressed whale in Thailand made headlines around the world. After an autopsy it’s cause of death was determined to be more than 80 plastic bags it had ingested. The pictures caused great concern and brought into focus the urgency of the fight against single-use plastic. This term refers to use-and-throw plastic products that are designed for one-time use, such as takeaway spoons and forks, polythene bags styrofoam cups etc. In its report on single-use plastics, the United Nations Environment Programme (UNEP) has described how single-use plastics have a far-reaching impact in the environment.

Dense quantity of plastic litter means sights such as the distressed whale in Thailand aren’t uncommon. Plastic products have been found in the airways and stomachs of hundreds of marine and land species. Plastic bags, especially, confuse turtles who mistake them for jellyfish - their food. They can even exacerbate health crises, such as a malarial outbreak, by clogging sewers and creating ideal conditions for vector-borne diseases to thrive. In 1988, poor drainage made worse by plastic clogging contributed to the devastating Bangladesh floods in which two-thirds of the country was submerged.

Plastic litter can, moreover, cause physiological harm. Burning plastic waste for cooking fuel and in open air pits releases harmful gases in the air, contributing to poor air quality especially in poorer countries where these practices are common. But plastic needn’t even be burned to cause physiological harm. The toxic chemical additives in the manufacturing process of plastics remain in animal tissue, which is then consumed by humans. These highly toxic and carcinogenic substances (benzene, styrene etc.) can cause damage to nervous systems, lungs and reproductive organs.

The European Commission recently released a list of top 10 single-use plastic items that it plans to ban in the near future. These items are ubiquitous as trash across the world’s beaches, even the pristine, seemingly untouched ones. Some of them, such as styrofoam cups, take up to a 1,000 years to photodegrade (the breakdown of substances by exposure to UV and infrared rays from sunlight), disintegrating into microplastics, another health hazard.

More than 60 countries have introduced levies and bans to discourage the use of single-use plastics. Morocco and Rwanda have emerged as inspiring success stories of such policies. Rwanda, in fact, is now among the cleanest countries on Earth. In India, Maharashtra became the 18th state to effect a ban on disposable plastic items in March 2018. Now India plans to replicate the decision on a national level, aiming to eliminate single-use plastics entirely by 2022. While government efforts are important to encourage industries to redesign their production methods, individuals too can take steps to minimise their consumption, and littering, of single-use plastics. Most of these actions are low on effort, but can cause a significant reduction in plastic waste in the environment, if the return of Olive Ridley turtles to a Mumbai beach are anything to go by.

To know more about the single-use plastics problem, visit Planet or Plastic portal, National Geographic’s multi-year effort to raise awareness about the global plastic trash crisis. From microplastics in cosmetics to haunting art on plastic pollution, Planet or Plastic is a comprehensive resource on the problem. You can take the pledge to reduce your use of single-use plastics, here.

This article was produced by the Scroll marketing team on behalf of National Geographic, and not by the Scroll editorial team.