The FMCG sector – already reeling under the impact of two slow growth years were hopeful they would turn the corner this fiscal on the back of a good monsoon and the Seventh Pay Commission handout – was delivered a rude shock with the Government’s move to pull out large denomination currency notes from circulation in India.
However, despite the setback, the sector has remained largely optimistic saying the note ban phase is a “a temporary blip” that is unlikely to prolong the slowdown and “demand should pick up next quarter on the back of strong demand and consumption”.
Like the rest of the economy, the industry is getting ready for a breath of fresh air after a likely GST rollout in 2017, which is expected to bring relief from high taxation and consequent increase in cost.
Acknowledging that there will be pain in the short term, the organised players believe that demonetization and GST will stand them in good stead vis-a-vis unorganised players because of compliance and structural changes which will ensue.
Looking forward to the next year, Marico MD and CEO Saugata Gupta told PTI: “We expect the fourth quarter to be better and settled in comparison to third. We are already seeing some signs of recovery, especially in stand-alone modern trade, urban, retail and chemists, but it will take time to stabilise completely.”
From a long-term perspective, he further told PTI: “The demonetization coupled with GST will lead to more compliance and bring about structural changes in the way the wholesale functions in the sector. There is absolutely no change in the medium- and long-term growth aspirations. In fact, organised players like us will further benefit.”
EY India Partner and Leader (Retail and Consumer Products) Pinakiranjan Mishra was quoted by PTI as saying: “This will bring businesses into the tax bracket while lowering the tax impact and bringing more transparency… This will also create a level-playing field among players by bringing all into the tax system.”
But for the moment, the industry is reconciled to dealing with the after-effect of demonetization.
“Overall, 2016 was a lackluster year for the FMCG sector. We did see some recovery, with growth inching up to low single digits… (but) the hopes of a significant revival post a strong monsoon have been temporarily derailed by the impact of demonetization,” Godrej Consumer Products (GCPL) MD Vivek Gambhir was quoted by news agency PTI as saying.
“Certainly, in this period, growth rates would be muted. Some categories which are high on consumer discretionary would even have degrowth,” he concluded.