Budget 2020: Rural push may help revive demand for FMCG companies

The proposal to double farmer's income by 2022 is likely to revive rural slowdown and help lift demand for fast moving consumer goods (FMCG) companies.

Finance Minister Nirmala Sitharaman in the Budget speech laid down 16 actionable points to enhance farmer income.

The Finance Minister proposed to expanded 'PM Kusum Scheme' to 20 lakh farmers to set up solar pumps.

The minister said Rs 2.83 lakh crore will be allocated for agricultural, irrigation and allied activities and rural development schemes.

"Thrust on agriculture, irrigation and rural development should fuel growth in a struggling rural economy. While a slew of new schemes were announced during the budget speech, effective implementation of these would, however, hold the trump card," said Vivek Karve, Chief Financial Officer, Marico Ltd.

"Hopefully, the Government will also show the necessary resolve in landing these initiatives well. Overall, the focus of this year’s budget continues to be “Aam Aadmi” and for a country like India, where the middle class forms the belly of the employment and consumption market, that seems to be the right thing to do," he added.

Among other announcements for farmers, the finance minister proposed to change the existing regime that promotes excessive use of chemical fertilisers.

She also said that there is a need for farmer markets to be liberalized and most of the measures announced are likely to boost consumption for FMCG companies.

The Finance Minister said the Budget is centred around three themes of aspirational India, economic development and caring society.After two years of double-digit growth, FMCG growth slowed down to single-digit in 2019 largely hit by the rural slowdown.

In the calendar year 2019, FMCG witnessed 9.2 percent growth (excluding e-commerce) down from 13.5 percent in the previous calendar year.

According to research firm Nielsen India, the key factors influencing the trajectory so far and the forecast for the future include macroeconomic economic indicators such as inflation and GDP, government policies and budget provisions.

Consumption is the most important part of the Indian economy, given that it forms around three-fifth of the Indian economy. And, any slowdown here is bound to affect the overall economy.

Rural India contributes to 37 percent of overall FMCG spends and has historically been growing around 3 to 5 percentage points faster than its urban counterpart on account of increasing affordability, availability, and demand.

A year earlier, rural growth was faster than urban consumption, which added edge to volumes and product diversification for FMCG  companies.

Almost all consumer-facing companies are facing a rural slowdown. To name a few, Hindustan Unilever, ITC, Godrej Consumer Products, Dabur, Marico, Britannia Industries, Prataap Snacks, and Emami.