Increased rural spend to boost FMCG sales

Last Updated: Thu, Feb 28, 2013 23:20 hrs

Consumer product companies have reason to cheer after the announcement of the Budget today. At a time when the noise levels over reining in welfare expenditure were getting louder, the finance minister's decision to increase allocation to the ministry of rural development by 46 per cent was significant. This allocation for the next financial year will stand at Rs 80,194 crore from Rs 55,000 crore now.

So, rural development schemes will get a fillip. This Sunil Duggal, chief executive officer (CEO), Dabur India, said will put more money in the hands of rural consumers. "I am quite happy with the government's continued focus on rural India. The decision to extend interest subvention scheme for short-term crop loans and higher allocation for the national rural employment guarantee scheme are big positives that would surely go a long way in putting more money in rural pockets and improving their standards of living. This would, in turn, ensure continued rural demand," he said.

A third of FMCG sales today come from rural areas. Most players are looking to take this to 40 per cent of the total sales in the next few years. The government's emphasis on rural development should help companies in this endeavour, said Naresh Bhansali, CEO, finance, strategy and business development, Emami. "I am happy there has been an attempt to promote agriculture, infrastructure and manufacturing. It will help increase disposable incomes among rural and lower-income groups," he said.

Besides, the announcement by the finance minister that an allocation for compensation to states would be provided for Goods and Services Tax (GST), say experts, is a signal in favour of its implementation. "If done in the next 12 months, this will be an important step," says Pinakiranjan Mishra, partner & national leader, retail & consumer products, Ernst & Young India.

Apart from these policy initiatives, companies are also relieved there has been no increase in excise and customs duty this year. This means there will be no price rises post the Budget. "At a time when consumers have been reeling from inflationary pressures, I welcome this move to keep the peak customs and excise duty unchanged at 10 and 12 per cent, respectively," says Aniruddh Dhoot, director, Videocon Industries and president of the Consumer Electronics and Appliances Manufacturers Association.

Of course, cigarette makers have not been lucky with the special excise duty hiked to 18 per cent on all sticks except those not exceeding 65 mm. Cigars and cigarellos are also seeing a similar excise hike. FMCG analysts estimate cigarettes prices will shoot up eight per cent to offset the excise hike.

But, while cigarette makers are unhappy with the raise in excise duty, high-end electronic goods manufacturers are happy the government has agreed to provide incentives for the semi-conductor industry, including zero customs duty on plants and machinery. "This was a long-standing demand by consumer electronics makers," says Eric Braganza, president, Haier Appliances. "Which has been finally met. Semi-conductors are used in LED, LCD TVs and mobile phones. Because there was no incentive to set up plants here, manufacturers would have to import the technology from Korea, Japan and China. With the move to incentivise this industry, manufactures will now look to set up semi-conductor units here," he says.

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