FMCG growth forecast is revised downward by 2%

Consumption-led growth has its limitations

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The Indian GDP growth figures, which have become a political football, will ultimately catch up with reality while there is no denying that GDP growth (which in its second worst case is 6%) is not bad for a US$ 2.7 trillion economy. The real worst case figure cannot be easily established and will likely never be known nor consensually acknowledged. India’s GDP growth has been consumption-led and what has been missing is high growth in infrastructure investment and high growth in gross capital formation.

While the government says that US$ 777.3 billion (Rs. 50 lakh crore) is needed for infrastructure development by 2022 to have sustainable development in the country, its 2019-20 budget has allocated US$ 92 billion (Rs. 6,44,000 crore) for capital development of infrastructure. Private equity and venture capital investment in Indian infrastructure in 2018 was of the order of US$ 1.97 billion (Rs. 14,000 crore) and there were 91 merger and acquisition deals said to be worth US$ 5.4 billion (Rs. 40,000 crore) in that year. In this sector, major failures such as IL&FS have already come to light.

Gross fixed capital formation as a percentage of GDP needs to be in the high 30% range (ideally above 40% – it was at its highest level of 35.6% in 2007) but it has been falling in the past few years from 34.31% FY 11-12 to 28.5% in FY 17-18. The latest RBI estimate for gross fixed capital formation as a percentage of GDP at current market prices in FY 18-19 is 29.1%. The forecast estimate for FY 19-20 is 29.4%.

What is of seemingly direct concern to the packaging industry is the renewed high growth of the fast moving consumer goods (FMCG) industry, which has undergone some challenges in the past three years. Unfortunately, some projections for the growth of the FMCG industry are now being revised downward. According to a recent report in Mint, Nielsen research is quoted as saying that the Indian FMCG industry in the coming financial year FY 19-20 will decrease growth by at least 2% in comparison with FY 18-19. The projected 11 to 12% for FY 19-20 is a downward revision from its earlier forecast of 13 to14% growth for India’s FMCG sector. The same forecast suggests that FMCG volume growth that peaked at 11% in FY 18-19, will decline to somewhere between 8.5 and 9.5% in the current financial year.

The same Mint report quotes the chief economist at CARE Ratings, Madan Sabnavis, saying that his agency does not have “confidence that consumption will see a pick up in India and would not even see a revival this year.”

Sabnavis goes on to say, “Last year, farmers received lower prices on crops, which led to low spending and is now getting reflected in consumer durables and piling up of inventories in different segments like auto in the last few months. Therefore, we will get the real picture of consumption only by September-October post monsoon in India.”

Most reports say that while there is a slight drop in urban consumption, there is a significant drop in rural consumption rates, which generally grow at a faster rate. Historically, rural consumption has grown 3 to 5% faster than urban consumption but now both are becoming similar.

Apparently, the drop in rural consumption growth is mainly due to a slowdown in packaged foods such as atta, refined oil, spices, biscuits, chocolates, breakfast cereals, cheese and sugar substitutes. While there is a slowdown across various food categories in rural areas, the extent of drop is larger in essential products such as atta and refined oil, as well as impulse food categories such as biscuits and chocolates.

The Covid-19 pandemic led to the country-wide lockdown on 25 March 2020. It will be two years tomorrow as I write this. What have we learned in this time? Maybe the meaning of resilience since small companies like us have had to rely on our resources and the forbearance of our employees as we have struggled to produce our trade platforms.

The print and packaging industries have been fortunate, although the commercial printing industry is still to recover. We have learned more about the digital transformation that affects commercial printing and packaging. Ultimately digital will help print grow in a country where we are still far behind in our paper and print consumption and where digital is a leapfrog technology that will only increase the demand for print in the foreseeable future.

Web analytics show that we now have readership in North America and Europe amongst the 90 countries where our five platforms reach. Our traffic which more than doubled in 2020, has at times gone up by another 50% in 2021. And advertising which had fallen to pieces in 2020 and 2021, has started its return since January 2022.

As the economy approaches real growth with unevenness and shortages a given, we are looking forward to the PrintPack India exhibition in Greater Noida. We are again appointed to produce the Show Daily on all five days of the show from 26 to 30 May 2022.

It is the right time to support our high-impact reporting and authoritative and technical information with some of the best correspondents in the industry. Readers can power Indian Printer and Publisher’s balanced industry journalism and help sustain us by subscribing.

– Naresh Khanna

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