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FMCG firms want faster growth to keep sales counters ringing

Monday, 7 July 2014 - 6:55am IST | Place: Mumbai | Agency: dna

Seek GST rollout, infrastructure ramp-up and I-T sops to consumers from the budget

Ballooning inflation, high input costs and demand slowdown have badly impacted fast moving consumer goods (FMCG) and consumer durables firms, which are seeking a budget push to breathe life into their sagging businesses.

"What the industry wants most is an operating environment that is conducive to business and an administrative process that is transparent and less bureaucratic," said Shantanu Das Gupta, vice-president - corporate affairs and strategy, Asia South, Whirlpool of India.

The policy paralysis for months end is badly impacting sentiments as well as growth, feels Sarvesh Shahra, business head, FMCG and specialty ingredients, Ruchi Soya Industries.

"High interest rate is not supporting large investments and expansion plans. While current account deficit is a big issue, it is improving due to certain good initiatives by the RBI," he said.

Apart from the demand slowdown and policy issues, the industry are also facing operational problems with quality of power and water supply adding to costs and hurting efficiency.

The durables industry, in particular, wants simplification of implementation of e-waste in the current framework. It is also seeking incentives to develop supply base for home appliances and electronics in the country.

Siraj Chaudhry, chairman, Cargill India and chairperson of Ficci Food Processing Committee, feels higher level of investments in infrastructure including cold chains, packaging and transportation need to be encouraged.

"This should supported with fiscal incentives and policy facilitation to move food from producers to consumers in an efficient manner," said Chaudhry.

The industry has been asking for a rollout of good and services tax (GST) for long time now. In a recent interaction with dna, Adi Godrej, chairman of Godrej Group, had said with a strong government at the Centre, the country can reach minimum 8% GDP growth by fiscal 2015-16.

"This can certainly be done, in fact it can be exceeded. If the GST is passed it will add 2% to India's growth rate and there are many other steps that can add to the overall growth scenario," Godrej had said.
GST will help simplify tax structure, reduce significance of unorganised players and reduce black marketing. "We expect GST deadline to be set, though implementation is the key," said Abneesh Roy, associate director - institutional equities - research, Edelweiss Securities.

Gupta of Whirlpool of India said GST will remove the adverse impact of cascading taxes.

"The savings generated can neutralise other inflationary costs, thereby negating the pressure for price hikes, which the industry can ill afford. In an economically stable environment, GST could actually see prices come down, which can spike demand," he said.

On the demand side, rising inflation has led to consumer pinching pennies and spending on only necessary items / products. "Ours is an industry that thrives on disposable income and growth has been impacted primarily due to contraction of disposable income," said Gupta.

IndiaNivesh Research in a recent report said that prevailing high inflation level is a cause of concern for the consumer / FMCG sectors.

"Higher allocation towards rural employment schemes and lowering of effective taxes on personal income in the budget could boost the sector growth," analysts said, adding that the sector could see hike in the excise duty on cigarettes.

Gaurav Gupta, senior director for consumer business sector (FMCG, retail), Deloitte in India, said it's going to be a tricky budget for the new government as expectations from both corporates and citizens are high while the government will need to triangulate between inflation, budget deficit and investment.

"Also, less rains could impact FMCG and retail industry through reduced demand and increase in commodity prices. Some of the major expectations will be to help increase demand through changes in tax structure and incentives, consensus on GST roll-out, programme to boost infrastructure, reduce wastage and consumer price inflation, while providing incentives to boost manufacturing."

Given that increased disposable income is very crucial for the growth, the consumer and FMCG sectors want more cash in the hands of the consumers. "An increase in income tax exemption limit will increase disposable income and boost consumer spending," said Roy of Edelweiss.

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