FMCG Sector Expects Budget 2022 to Foster Consumption-driven Growth

The sector expects the government to bring measures that not only maintain the consumption rate but also boost it further for the growth in the sector.
FMCG Sector Expects Budget 2022 to Foster Consumption-driven Growth 

The FMCG sector had to go through several ups and downs during the last year: months like October, July was the best months since pre-pandemic whereas in September the growth tanked. The growth was recorded mostly due to an increase in consumption. 

Also, top FMCG players recently witnessed an increase in demand as consumers started stocking up amid the rise of the third wave, and the players in the FMCG segment ramped up supplies to their stockists to avoid a supply shortage.

Consequently, going forward, the sector expects the government to bring measures that not only maintain the consumption rate but also boost it further for the growth of the sector (consumption-driven growth). 

“Out-of-home consumption will be another avenue for growth as people start to commute more frequently for both work and pleasure after enduring a long period of lockdown. The upcoming budget can look at ways to stimulate consumption-driven growth,” said Murtaza Bakir, Country Manager - India and Sri Lanka, Mintel. 

Some of the ways to boost consumption from the government are to bring investments in areas such as infrastructure development, digital augmentation, and MSME development. Experts believe that the government can set up special funds in the budget that can help grow those specific areas. 

Shammi Agarwal, Managing Director of Pansari Group stated, “With an ongoing Covid, the FMCG sector is witnessing an impact on the consumer demand. The Government should boost consumer demand by reduction of personal taxes leading to an increase in their disposal incomes. This would increase the consumerism and overall growth.”

Saurabh Saith, CEO of Orion India also said, “The Covid-19 pandemic has impacted people and the economy adversely. The surge in cases in the third wave has made it crucial for the government to introduce corrective measures to boost consumer spending and the economy. New initiatives and fine-tuning of some popular schemes in the upcoming budget can help the government attract new investors, especially in the FMCG space and propel economic growth. Specific to the FMCG sector, we feel that there is an urgent need for the Government's intervention in the commodity prices, given that it is one of the major contributors to rising input cost and cash burn.”

Besides focusing on consumption, there are other key areas in the FMCG sector that government needs to address that will enable a complete revival of the sector: address inflation, GST rates, rural infrastructure, and so on.   

Need To Address Inflation

Inflation continues to remain a big problem for FMCG companies this year, in fact, in 2021, the prices of most commodities including packaging rose to unprecedented levels.

Vikram Agarwal, Managing Director of Cornitos said, "Past year has been a journey to revive the economy and we are optimistic that this year we would see increased demand of products. In order to meet the overgrowing demand, we would like this year's budget to help us in getting the production cost lowered along with deduction in taxes charged on raw materials like crops, oil, and machinery."  

Manish Aggarwal, Director, Bikano, Bikanervala Foods added, “With the pandemic, the cost of raw and packaging material has risen, resulting in many industries being forced to hike prices. We need help in tackling high inflation levels, as also in digitalization of rural areas."

Whereas, Agarwal of Pansari Group is of the opinion: “The FMCG sector witnessed a slow growth last year owing to after-effects of demonetization and GST rollout. In order to stabilize the market and revive growth, the Government should provide subsidies/ loans, personal tax reduction, GST reduction." 

“There should be good incentive plans for new manufacturing units in FMCG and subsidy disbursement should be eased with minimum limitations along with better MSME funding options. There should be a reduction in GST rates of FMCG products. FMCG products are falling in the essential category and this is the daily need of the people. Considering the majority of people lying in below middle class or poor class, there should be nil GST or should be reduced to 3 percent,” Agarwal further stated. 

Also, equally importantly, since there has been a major adoption in online shopping in recent years, the government ought to further facilitate the adoption process for the sellers and manufacturers. 

Aggarwal added, "Specific to e-commerce and e-grocery, this budget will also be a great time for the government to rationalize GST rates, compliance processes, FDI policies, and ride the buoyancy revenue curves. The Government has always been generous towards our sector however, we hope that it extends additional support towards our industry in terms of investment, expansion, and transformation apart from the policies."

Rural Infrastructure Development

In the future, the growth in the retail sector will be decided by who has the maximum market capture in the non-metro and rural areas because retail consumption is inching towards a saturation point in the Tier-I cities. FMCG brands will be eyeing to expand their servicing regions to rural markets, consequently, they will look for measures in the Budget 2022 that will enable that. 

“The Government must ensure that rural infrastructure projects are expedited and implemented at the right time. The rural focus has multiple benefits - it will not only increase rural income through employment generation by these projects but will lead to set up of units and will have demand acceleration,” Agarwal of Pansari group stated. 

On a similar note, Ashish Khandelwal, Managing Director, BL Agro stated, “In line with the National Nutrition Mission, FMCG companies manufacturing nutrition-rich food products should also be extended incentives and priority benefits. Also, there should be a reduction in GST rate on items such as ghee, butter, dry fruits, to increase rural consumption as they form a major market.” 

Further, Gaurav Manchanda, Founder and Managing Director of The Organic World shared: "Sustainability initiatives are a key part of the organic and natural retailing space and we hope the FMCG industry will get the support of the government to proceed in this direction, in the form of incentives that encourage brands to adopt sustainability initiatives. One of the key demands for the retail sector as a whole has been for the speedy implementation of the National Retail Trade Policy to help streamline processes and encourage growth.We are also hopeful that the compliance burden on the Retail sector as a whole will be reduced in order to promote the ease of doing business.”

Lastly, local manufacturers are eyeing some incentives from the government that will give them an upper hand over their domestic counterparts and fosters domestic manufacturing. 

“The manufacturing industry has always been a sensitive one, balancing the operating costs and the profitability. Any new strategic investment gets burdened in ensuring the ROI. It would be of immense benefit if the government incentivized and encourage investments in manufacturing and drive the local manufacturing sector in line with the Make-in-India push. Tax benefits for manufacturers on meeting set goals for productivity, green index, health and safety standards, etc. would also help to increase technology adoption," concluded Ashish Khandelwal.

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