The FMCG sector’s growth in the second half of 2014 is expected to match the first half’s rate of 7 percent, with rural growth pegged in a range of 8-10 percent compared with 9 percent.
In the six months ended June, the sector’s revenue in rupees is expected to have risen by 7 percent, compared with the 13 percent increase in the year-ago period, according to Nielsen Co. This decline is driven both by urban and rural areas. However, rural markets still continue to drive overall sales growth.
The Indian fast-moving consumer goods (FMCG) sector’s growth has been hit by a combination of factors. Their costs have risen, mainly due to an increase in input costs, but also because of higher staff and marketing expenses. Recent quarters have seen marketing outlays taper in proportion to sales. But consumer demand, too, has slackened, partly because of rising product prices, and also because of slower gross domestic product (GDP) growth and the impact of broad inflation and high interest rates on disposable income.
The monsoon has disappointed this year and advance government estimates indicate that the output of crops such as pulses, coarse cereals and oilseeds has been affected. But this data do not take into account precipitation in September, which holds out the prospect of an upward revision. Still, this remains an area of concern both for rural growth and for food inflation.
But there are several bright spots as well. The prospects for a recovery in economic growth have become better. Wholesale-price inflation is under check and this augurs well for the production costs of consumer companies. Consumer-price inflation, too, has slowed from double-digit levels, though food inflation continues to see pockets of high price growth.
A fall in global commodity prices—from crude oil to products such as vegetable oils and sugar—is good news. They could keep domestic prices under check, except in commodities such as dairy products where it’s a closed market for imports. But falling crude oil could help keep factory fuel costs and freight rates under check.