New reports underscores impact of rural slump on India's FMCG sector

The fast-moving consumer goods industry is likely to grow at a slower pace of 11-12 per cent in 2019, almost 2 percentage points lower than in 2018, primarily driven by the steeply falling rural demand due to the lingering farm distress, says a report. The industry is also expected to grow at 12-13 per cent in the June quarter, market research agency Nielsen said in a report Wednesday.

The sector grew at 13.6 per cent in the first quarter. But there is a softening of volume growth to the tune of 100- 200 basis points, still helping to grow in double-digits in the first half. More importantly, the second half will see more strain leading to high single-digit growth, it said.

The volume growth which peaked in 2018 to 11 per cent is expected to be healthy but lower at 8.5-9.5 per cent in 2019, the report added. It said this is not surprising as similar fall is seen in the economy as a whole which grew at a lower 6.6 per cent in the December quarter, against an expected 6.8 per cent.

Inflationary pressure is also seen mounting in recent months from a little over 2 per cent in January to 2.9 per cent in March 2019, the report added. While there is only a slight drop in urban volumes, there is a significant softening of demand trend in rural markets which has been dampening the overall industry growth from the third quarter of 2018 to the first quarter of 2019.

Historically, rural markets have been growing 3-5 percentage points faster than their urban counterparts and the recent slowdown in rural growth has brought growth rate closer to the urban level, the report added. The overall drop witnessed in rural growth is majorly driven by a slowdown in the packaged food category, it noted.

(With inputs from agencies.)