Economic slowdown not as bad as shown; some products not selling because people buying other items

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Published: August 27, 2019 4:34:05 PM

Preferences of the consumers are changing from high-end branded products towards good quality products of small companies which are not listed.

slowdown, fmcg, auto sector, msme, sbi ecowrap, sbi, gdp growth rate, comsumer demandThe single-digit growth of FMCG companies in Q1 FY20 is due to the base effect. (Bloomberg image)

The Indian economy is evidently going through a slowdown, mainly driven by the lack of demand in the rural heartland. Wage growth, per capita income and household savings are affected but is the slowdown being exaggerated? Moving slightly from the macroeconomic picture to the structural shift of consumer choices and preferences, a recent research note by SBI shows that the preferences of the consumers are changing from high-end branded products towards good quality products of small companies which are not listed. The behavioral pattern of consumers is leaning more towards herbal and Ayurveda oriented personal care products, presently being made in the unorganised or small business segments which are not formally captured by the data survey teams and this could also be one of the reasons for a downward bias in the data.

FMCG sector slowdown

The SBI Ecowrap report also suggests that the single-digit growth of FMCG companies in Q1 FY20 is due to the base effect; FMCG companies had a very high growth rate in the previous year Q1 FY19, over the weak sales in preceding year Q1 FY18 in the wake of demonetisation. This makes the volume growth in Q1 FY20 to appear weaker. If the Q1 FY19 growth were 7-8 per cent, then growth rate for Q1 FY20 would have been in the range of 9-10 per cent y-o-y. Thus the recent moderation might be more of a statistical artefact.

Next, consumer preferences in India are also undergoing structural shift. One of the top biscuits maker Britannia has seen an increase in volume, while on the other hand, the condition of Parle has deteriorated with falling sales of Parle biscuits. This may be related to change in the preferences of customers towards more healthy options of biscuits and snacks, says the report.

Another factor could be the change in preferences of the consumers from high-end branded products towards good quality products of small companies which are not listed. In the case of beauty products, customers have now become conscious while purchasing them. The packaging claiming natural does not convince them, instead the customers analyse the ingredients list and choose the brand which satisfies them. This is happening globally, including India.

Auto sector slowdown

The auto sector slowdown in India is a part of the global crisis that is unfolding. The report shows that auto sales in Asia-Pacific are expected to fall 2-3.5 per cent this year after declining roughly 1 per cent in 2018. Besides India, China, Indonesia, Malaysia are also going through an auto slowdown. Countries like South Korea, Thailand and Japan recorded negative growth in June 2019.

MSME sector slowdown

The stress in MSME sector has been attributed to non-availability of authentic financial data, vulnerability on account of delayed payments by buyers, technological challenges due to low awareness, absence of single MSME data repository, low awareness about various government initiatives and lack of compliance to statutory norms. The need for a centralised authority to monitor and take action for delayed payments is suggested to be one of the most important requirements to boost the MSME sector.

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