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Will Rural Demand Push FMCG Sector Up?

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The FMCG industry in India continues to recover as consumers have returned to their normal routines. According to NielsenIQ’s FMCG Snapshot for Q2 2022, the FMCG industry had grown by 10.9% in the quarter ending June 2022, versus 6% in the previous quarter.

With budget 2023 just a few days away, there are some expectations of the industry, which see the sector as one of the most important industries, which traces its chain from rural India.

Rural demand is poised to recover, with food and overall inflation likely to trend between 5-5.5 percent compared to 6.8 percent in 2022. The lower inflation will support rural demand.

According to a Moneycontrol report, in 2023, rural demand will pick up strongly, urban demand will remain steady and move with a positive bias, volume growth will replace price-led growth, and more importantly, the sector will witness margin recovery.

Meanwhile, industry experts and FMCG players are optimistic about the budget and expect some initiatives from Finance Minister Nirmala Sitharaman.

Also Read: Budget 2023 Expectations: Here’s What Personal Care Brands Expect From Finance Minister

Krishnarao Buddha, senior category head, Parle Products, said, “The union budget 2023-24 should foster investments to accelerate and balance economic recovery across markets. Enhanced focus on programs that aim to increase employment opportunities will give a boost to the rural economy and in turn, increase their purchasing capacity.”

Buddha added that for the FMCG sector, a balanced rural growth is extremely important for inclusive development.

Growth in infrastructure and technology are also key areas to focus in order to recover from the effects of the pandemic.

“Along with these initivaties, the government should focus on catalysing ease of doing business. With accessible disposable income and continuous cycle of job creation, there will be increased consumer confidence and access to credit and markets; these efforts can collectively further the FMCG growth engine,” Buddha added.

Experts like Manish Aggarwal, director, Bikano, Bikanervala Foods, also feel that the budget through policy measures ensure that there is a revival of demand in the economy particularly rural demand which has been somewhat lacklustre this year.

“Apart from stimulating rural income generation through various ways, this would also necessitate higher capital expenditure with a view to resolve post-pandemic supply chain disruptions and to improve long-term supply chain efficiencies in the hinterland markets,” Aggarwal added.

Elaborating upon the fear of a possible recession in the West in the coming months, Aggarwal highlighted that consumption expenditure in the larger domestic economy needs to be encouraged.

Even as commodity prices have exhibited signs of softening, there is a need for cooling down of some raw materials and inputs especially critical to the food FMCG segment. Predictability and stability of input prices is critical to any sector including the FMCG sector and the budget must ensure that, Aggarwal urged.

Also Read: Budget 2023 Expectations: Will Travel and Tourism Get The Industry Status?

The budget should also address the rising prices of various packaging materials, again crucial to FMCG since packaging typically contributes to nearly 10% of the input prices of an FMCG product.

Aggarwal also demanded that the government should do a rethink on contract farming allowing a more balanced risk-sharing arrangement between farmers and industry with adequate in-built safeguards for farmers. While this would give assured prices to farmers, it would also result in the availability of precisely desired quality and types of inputs and ingredients for FMCG players.

Concluding on the expectations, Aggarwal urged that the government could also consider rationalising GST rates on FMCG products as also easing compliance rules and processes, particularly in terms of food safety and hygiene standards in the coming budget.

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