Indian FMCG companies have been major beneficiaries of robust consumption demand led by favourable demographics, rising income levels and increased urbanisation. Overall sales growth of the companies has been strong despite continued high food inflation for past several months. The momentum witnessed by the rural economy has also helped to a great extent since rural India forms 40-50% of total FMCG demand. However, rising input costs and heightened competition has dented profitability. Though companies resorted to price hikes, they have been either with a lag or insufficient to cover escalated costs.
While the Union Budget 2011-12 has attempted to pep up demand, it has not addressed concerns of inflation though the Finance Minister expects average inflation to come down in next financial year.
Budget proposals ::
Proposal: Exemption limit for the general category of individual taxpayers enhanced from Rs 1,60,000 to Rs 1,80,000
Impact: Higher disposable income with consumers
Companies: Positive for the sector
Proposal: Central excise duty maintained at 10 per cent
Impact: Amid high inflation levels, not raising excise duty has been welcomed.
Companies: Positive for the sector especially ITC as a single digit excise hike on cigarettes was strongly expected
Proposal: As a step towards roll out of GST, Constitution Amendment Bill to be introduced in this session of Parliament.
Impact: GST on implantation will reduce distribution costs and encourage the organised sector
