The R1.4-lakh-crore Indian FMCG sector has three primary expectations from the Budget ? consistency in fiscal policy to enable companies to plan for the medium term, excise duty at current levels, and reining in of fiscal deficit by way of judicious spending. ?We need to ensure that the Budget addresses immediate term growth concerns and at the same time contains inflation,? says Saugata Gupta, CEO, consumer products business at Marico, makers of Parachute and Saffola oil. ?Both these factors contribute to the growth in FMCG consumption.?
Indian FMCG companies had been under pressure for most part of last year due to commodity inflation owing to various global and local factors. ?We believe the recent moderation in inflation and rising expenditure will require the government to increase direct and indirect sources of revenues,? says Sagarika Mukherjee, an analyst with SBI Capital Securities. ?We expect some news on the progressive measures like introduction of the goods
and services tax (GST). Excise duty rates are expected to increase by 10-15% for cigarettes and other FMCG products.?
With rising operating costs, FMCG companies were hoping for GST implementation so they could optimise their costs through realigning warehouse. ?It?s unfortunate that there is a low probability of GST going through, even in this Budget,? says Nitin Mathur, an analyst with Espirito Santo Securities.
Industry captains also expect greater clarity on the implementation of GST which will help the industry plan better. ?Apart from this, budgetary measures should also sustain concessions for agro-based industries to incentivise investments,? says Kimsuka Narsimhan, CFO, PepsiCo India.
According to Narasimhan, PepsiCo India continues to leverage its expertise in production efficiencies in order to keep input costs in control and offset the impact of inflation and increased taxation on the consumer. ?It is therefore imperative that budgetary measures focus on lowering inflation and raising consumer confidence for spurring demand and overall industry growth,? she says.
While many F&B (food & beverages) companies in India have witnessed a decent volume growth in the past year, fueled by the increasing consumption in the rural markets, year 2012 still has its share of challenges for the industry as well as the government. ?The economy is currently under sustained inflationary pressure. F&Bs being a basic need of the consumer, most companies are not in a position to pass on the rising input prices even partially to the consumer,? says Nadia Chauhan, joint managing director of Parle Agro.
Chauhan expects the government to take active measures to boost the consumer and industry confidence in the economy.
Industry experts point out that the sector is witnessing increasing commodity and input prices and poor yield, insufficient logistics and storage infrastructure are adding to this pressure. ?Along with subsidies, which are more of short-term measures, the government needs to invest in building infrastructure for the food processing industry. The government should fund technology upgradation projects to train the farmers, helping them reduce wastage and increase yield,? says Parle Agro’s Chauhan.
Initiatives like setting up of mega food parks is a very positive step, which would lead to improvement in overall supply chain, benefiting the entire food industry, she says.
NH Bhansali, CEO, Emami, says the primary expectation from the Budget would be to drive growth on a macro level and yet maintain the balance. At the operational level, he expects excise exemption in northern and eastern states. ?We expect the excise exemption to be 100%. I also expect MAT on domestic companies, which has been continuously increased from 7.5% to 18.5%, to be cut,? he added.
In the current scenario, the growth potential for FMCG companies looks promising over the long-term horizon. As per a consumer survey by KSA Technopak last year, of the total consumption expenditure, almost 40% and 8% was accounted by groceries and personal care products, respectively. ?Rapid urbanisation, increased literacy and rising per capita income are key growth drivers for the sector. Testing times for the FMCG sector are over and driving rural penetration will be the key going forward,? according to the survey.
?Investors are hoping that the government would recognise the immediate need to convey its commitment to revive growth outlook and fiscal consolidation,? sums up SBI Capital’s Mukherjee.