Rural is the big prize; huge potential for FMCG biz in India in medium term
Sep 07, 2018 | Source: ET
On the Indian market and FMCG sector. First of all, you have to take a somewhat medium-term and a long-term view of India. Without a doubt, India is a great story in long term, in terms of consumption and demand. We have a large population base. It is a young population and of course our markets are relatively underpenetrated. From that point of view, if you take a medium-term outlook of the consumer business, without a doubt there is a huge potential. Obviously, there will be some cycles in the short term. At times, there will be a tailwind and at other times, there will be some kind of headwinds. We are approaching a period now where demand is beginning to pick up, particularly rural demand. The next couple of years should be good years in terms of consumption in India and of course the latest GDP numbers are looking better. Private consumption has gone up. All these are good signs of things to come.
On the healthy demand beyond the top 50 at tier III, tier IV cities compared to the consumption driven by urban area so far. It has always been the case that middle India will have the maximum potential. From my point of view, it is a good sign that we are seeing demand pickup in middle India because these are markets where the middle class is growing and consumption levels are still relatively lower compared to the big metros which behave very much like some of the other big cities of the developing markets. But for me, the big prize for consumer goods companies is rural. And we can see rural demand pick up. Remember, two-thirds of India still lives in rural areas. That is the big one to watch.
On the pricing power and volumes, in consumer durables, FMCG and pure consumer companies. That is a beautiful combination. Do you think vibrancy will continue in next couple of quarters or for that matter in four to eight quarters or even twelve quarters? You have to take a somewhat holistic view. There has always been a trend towards premiumisation India. It is an interesting phenomenon. Two sectors are set to see growth, a) at the mass end where we see a lot of under consumption and under penetrated categories will come up; b) the second big trend is premiumisation where people want to buy better. In urban markets, the trend is towards premiumisation and at the bottom end, you need to make sure that there are opening price points which will allow people and consumers who are currently non-consumers to come and buy our products. It is a bipolar kind of situation.
On the reason why some of the overseas companies are looking at Indian companies which have an established customer base and are climbing up the size ladder. From a global point of view, I can say that you are following where the people are and where the money is. The mistake that you must never make is only follow the money. You must follow the people. Because at the end, in our business, people is the potential. So, if you have a population base like India, China, Indonesia or for that matter, some of the other developing market, you are obviously going to build a bigger business for the future. Unilever, where I worked, always believed that our future was in the developing markets. It has the largest footprint in developing markets. We have had the patience and the perseverance to build our businesses in developing markets and importantly we have used developing markets as a talent pool for the rest of our business.
Consumption in rural India is growing at 1.5 times the rate in urban India.
Budget 2018-19 saw increased outlay of Rs 15,000 crore towards interest subsidy for short-term credit
The volume of institutional credit for the agriculture sector is raised to Rs 11 lakh crore from Rs 10 lakh crore last year with an aim to double farmers income by 2020
A dedicated corpus of over Rs 16,000 crore was also allotted in the Budget towards building infrastructure for irrigation and dairy processing
The highest-ever allocation to MGNREGA of nearly Rs 10,000 crore towards rural development programs will also boost rural consumption
Higher rural consumption can also be attributed to increased purchasing power, stable inflation, augmented government spending towards rural infrastructure development and poverty elimination programs
This smallcase has companies that either derive a significant amount of their revenue from rural India or are striving to enhance their foothold across rural markets to benefit from increasing rural demand.