Consumption slowdown in India, the recent talk of the town which has cast aspersions on the true economic situation, is actually not as severe as imagined, and the demand may revive if the government pushes some tax reforms, says a report. While pockets of some industries such as FMCG and automobiles took a hit, there is not much evidence to suggest that consumption growth has slowed down in the economy, CARE Ratings said in the report. Further, consumption may bounce back if the government cuts taxes on items, it said. Addressing the FMCG sector, the report also said that the players can look to roll out smaller size variants of the products which may spurt the sales.
The report has also revealed reasons which may have caused the slowdown, however moderate it be. In the FMCG goods, the higher prices deterred the margin and the bigger sized products also caused a demand slip. The ongoing rural crisis with the lower income levels for rural dwellers has had an impact on general demand for consumer goods as spending power has gotten constricted due to lower price realization on some crops, CARE Ratings report observed. Usually, the rural sector registers a higher demand for FMCG compared to urban demand. The farmer incomes have not seen a substantial increase even after the roll-out of Minimum Support Price income scheme in August 2018.
Also, with the volatile crude oil prices, imports reduced in FY19 which further led to a decline in crude oil processing. This also took a toll on the consumption in industries, the report said.
What can solve the issue at hand?
Firstly, FMCG companies need to spread awareness regarding the tax cuts required in the commodities, the report said. This could lead to an increase in discretionary spending. The government also needs to create more employment as it will hike the levels of disposable incomes. Easier access to loans, growth in advertising spend to increase visibility and persuade consumers to purchase the product and improved access and distribution in rural segment ensuring last mile delivery of products, are some ways to boost the consumption, said the report.