India's FMCG sector has been slowing down since 2016 under cloak and dagger
- The slowdown in FMCG sector started in 2016, however was camouflaged by trade disruptions, demonetisation and GST implementation.
- Agricultural incomes are crawling at a slow pace of 3%, which is less than half of the country’s growth projections for the year.
- FMCG companies themselves have been cutting advertising spends, as they have resorted to price cuts.
India’s economic problems are not temporary, not if global research firm Credit Suisse is to be believed. Agricultural incomes are crawling at a slow pace of 3%, which is less than half of the country’s growth projections for the year ---at 6.7%
It also affects over 60% of the country’s population which resides in villages. As fewer villagers are spending, the fast moving consumer goods (FMCG) sector is facing its worst ever growth in the last 15 years.
But, unlike the story of automobile slowdown, it did not start 11 months back.
“In our assessment, the slowdown started in 2016, however, was camouflaged first by trade disruptions in 2017 caused by demonetisation and GST, and then by the low base effect leading to high growth in FY19. The CAGR of FMCG revenue growth over FY16-19 was very low at around 7%,” said a report by Credit Suisse.
A large number of micro and macro factors led this slowdown which will not be easy to fix either, the report warns. The GDP in the agricultural sector hit a 15-year low in 2018.
“Liquidity worsened post Oct-2018 as non-banking financial companies faced pressures. Employment challenges for small businesses started with demonetisation and implementation of goods and services tax (GST), and was aggravated due to liquidity,” the report said.
Weak sentiment and ad spend cuts
As all these factors took effect, something worse has derailed it—weak sentiment. FMCG companies themselves have been cutting advertising spends to save their margins, as a few have resorted to price cuts, especially with soaps.
“We see most companies doing this as it does not impact immediate growth. There is also a rationalisation that in an environment of weak consumer sentiment, one could cut down the pace of innovation,” Credit Suisse said.
All eyes are now on the government to aid rural growth. And one of such was already kickstarted in February 2019, a scheme called PMKSN which provides an income of ₹ 6,000 per annum to 140 million rural homes. The scheme has reached only half of the intended beneficiaries. If the scheme picks up, it will add 2-3% growth in the FMCG sector.
It will also help Indian villagers spend on little comforts like biscuits, the sales of which have taken a drastic hit in the last few months.
After biscuits, Indian villagers are cutting down on clothes and hair oil too