With more and more consumer goods companies rushing to tap the rural markets, Adi Godrej-led Godrej Consumer Products (GCPL) has warned that rising cost of living may lead to a decline in rural sales in the short term.
"The rise in overall cost of living and concerns over decrease in social spending may have some impact on growth in rural FMCG sales in the short-run, but over the medium-to-long term, wage increases and enhanced exposure to products will lead to sustained demand," Godrej Consumer Products (GCPL) Chairman Adi Godrej said in the company's annual report.
Companies that are innovative, agile and responsive to the needs of consumers will stand out, he said.
The consumer goods sector has benefited in the past few years from a rise in disposable income in rural areas, where nearly 70 per cent of the country resides, he said.
FMCG companies net nearly half their sales from rural markets now and continue to pursue expansion in rural areas. The budget proposal to increase the allocation to the Bharat Nirman programme, from Rs 10,000 crore to Rs 58,000 crore can further drive rural growth and boost sales, he noted.
"The government programmes like the National Rural Employment Guarantee Scheme and minimum support prices for farm produce have been increasing rural incomes and standards of living of these masses. This has also led to increasing awareness and exposure to consumer products and brand preferences, in line with urban consumers," he observed.
Sounding bullish on the prospects of the sector during this fiscal after it being plagued by inflation and high interest rates during the previous year, he said, "Despite high interest rates, inflation and political uncertainties, the FMCG market continued to grow at a healthy rate last fiscal. Consumer demand remains strong and we are hopeful of that continuing."
"The FMCG sector continues to offer considerable opportunity for growth, given the increasing rural penetration and development in tier II and III cities...," GCPL Chairman said, adding that the sector is expected to maintain robust growth rate.
The FMCG sector is the fourth fastest growing segment in the country with a CAGR of 11 percent over the last decade led by strong domestic consumption.
Godrej, who is also the president of Confederation of Indian Industries, said the economic environment over the past year has been challenging.
"The reform programme has slowed down and governance issues have not been tackled as rapidly as they should be, but the opportunity is tremendous. Restoring growth through reforms and good governance is going to be very important and should be the main objective of the government.
"We expect the economy to get a push on the back of reforms such as the goods and services tax, direct tax code and opening up of FDI in key sectors. Progress on reforms will create a virtuous cycle of boosting production, consumption, attracting more investments and reviving growth," Godrej said.
