Struggling with high inflation and tepid rural demand, fast moving consumer goods (FMCG) companies are seeking the Union Government’s intervention in the upcoming Budget to boost consumption in the economy. Top executives at companies such as Hindustan Unilever (HUL), Parle Products, Emami and CavinKare expect a slew of announcements such as increasing the outlay under Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) and tax reduction for the salaried class that will help in demand regeneration.
“The expectation would be how the government puts money in consumer’s hand to ensure that the demand is not getting affected. One of the ways it can be done is by reducing the tax on the salaried class or by increasing the income tax slabs,” said Mayank Shah, senior category head, Parle Products.
“We would recommend that the government should introduce measures to ensure more money is left in the hands of the salaried and middle class to accelerate consumption and demand,” said a CavinKare spokesperson.
The companies also expect steps by the government to boost the rural economy, which slowed in the quarter gone by, after being a driver of FMCG growth and outperforming urban markets since the onset of the pandemic.
While addressing a post-earnings virtual briefing, HUL Chairman and Managing Director Sanjiv Mehta said the government needs to increase the outlay under MGNREGS and continue with its other schemes such as direct cash transfer, food subsidies which have supported the rural areas of the country even as COVID-19 wreaked havoc in urban areas.
HUL had flagged signs of a slowdown in the hinterlands of the country in the September quarter, and said the demand in these areas weakened in the December quarter.
“Though the headline value growth is still there in rural India, the volumes growth has turned negative,” said Mehta.
FMCG companies draw a large share of their sales from rural regions and a hit on demand in these areas has a direct impact on their sales.
Emami, which houses brands such as BoroPlus Navratna and Zandu and commands a major share of its sales from rural India, too, hopes the government would bring out a growth-oriented budget.
“Budget 2022 is going to be another challenging one, in which the government will have to balance between the growth and the necessities of the economy. Being again a year of elections in five important states, populism and socialism are expected to take prominence. Amidst this, we expect a budget which can drive post-pandemic steady growth,” said N H Bhansali, CEO-finance, strategy and business development, Emami Limited.
“Focus should be on infrastructure, start-ups, healthcare, and renewable energy among others. While GST and direct tax have been streamlined over a period, a few more initiatives like moderating the highest slab in individual taxation in line with corporate tax, honouring the commitment of fiscal benefit in the North-East where benefits are being denied on flimsy grounds are expected to be regularised,” he added.Shah of Parle Products also believes initiatives towards job creation would also help in demand generation in the economy. “The other expectation would be to increase the disposable income through employment. Job creation can be brought about by increasing the spending on infrastructure. Across urban and the rural markets, increasing the spending on infrastructure would result in higher job creation, which will be positive for different sectors,” he added.