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The early onset of the south-west monsoon this year has raised hopes among consumer goods companies that it would help take up rural consumption at a time when sentiment in general has been low on account of sustained inflation.
Adi Godrej, chairman, Godrej Group, who is also the president of the Confederation of Indian Industry (CII) says he sees rural sales growth improving this year for consumer goods companies on account of the monsoon, which began ahead of schedule. "The pace of rural sales growth will certainly improve if the monsoon remains the way it is," he says.
Fast moving consumer goods (FMCG) companies derive almost a third of their sales from rural areas. Most companies have been looking to take this figure up to about 40 to 45% and believe that monsoons can help play a critical role since they are crucial for most Indian farmers who depend on it for sowing crops such as rice.
The Indian Meteorological Department (IMD) has said today that the south-west monsoon this year is expected to cover almost 90 to 95% of the country by the month-end.
From a demand and consumption point of view this spells good news since a good agricultural harvest will mean decent income for farmers, implying these consumers will have better purchasing power. A just-released report from Fitch Group Company India Ratings & Research says that a normal monsoon will potentially boost rural consumption from the third quarter of the current fiscal. "Given the current low base, this may add 1 to 2 percentage points to private consumption," says Deep Mukherjee, analyst, India Ratings & Research.
He says the rate of growth of domestic private consumption has been at its lowest at 3.68% in 34 quarters, which is becoming a well-entrenched trend. A normal monsoon should help reverse the trend to a certain extent thanks to the optimism that it brings among consumers.
This in turn, says C K Ranganathan, chairman & managing director, Cavincare, maker of products such as Chik and Nyle shampoos, will also help companies get bolder at a time when many have had to truncate their plans thanks to the general economic sentiment. "Shampoos, for instance, as a category has been growing in single digits in the last few months. With good monsoons, rural consumers will be in a better position to spend. This will also embolden companies to bring out new products and possibly even tweak with pricing since they have the comfort that consumers are in a position to buy," he adds.
Most consumer companies, say analysts, keenly track the monsoons to determine whether they can consider raising product prices at the end of it. N Krishna Mohan, CEO, sales, supply chain and human capital at Kolkata-based Emami says his company has not taken a call on raising product prices just yet. "The monsoon is still at an early stage. We will wait and see how the season pans out," he adds.
