Wipro Consumer Care and Lighting, the maker of Santoor-India's second-largest bath soap brand, has said the government should put an end to speculation over GST rates that creates uncertainty in the minds of consumers and the supply chain thereby impacting consumption in the short term.
The company has seen a significant decline in growth rate in rural markets in the last three months, which has brought its overall rate of growth down to mid-single-digit from double-digit last year.
"The biggest confidence building measure that the government can undertake is to stop tweaking with the current GST rates. Or if it has to in specific sectors and industries, then it should do it immediately and get over with it," said Vineet Agarwal, CEO, Wipro Consumer Care and Lighting Ltd. "Rumors of a reduction in prices either due to fall in prices of raw materials or any anticipated change in taxation affects the supply chain as distributors do not want to pick up stocks."
India's economy is in the grip of a protracted slowdown with GDP growth cooling off from a high 8 per cent in Q1 2018-19 to 5 per cent in Q1 of 2019-20, the slowest pace since March 2013. The country's industrial sector production contracted by 1.1 per cent in August this year, an 81 month low stretching back to November 2012, indicating that GDP growth in the second quarter that ended September 30, could be even worse. In the last few days, various institutions have revised India's GDP growth forecast downwards.
On Sunday, World Bank said it expected GDP to grow only by 6 per cent in this fiscal against an earlier projection of 7.5 per cent in April. India's central bank RBI had also earlier this month downgraded country's GDP growth forecast to 6.1 per cent from 6.9 per cent.
Typically for the FMCG sector, rural markets have grown faster than urban centres but Agarwal said the trend has reversed spectacularly in the last three months.
"I do not think the overall propensity of consumers to spend, at least for products that we sell, has gone down by much-maybe by only 2 or 3 percentage points. Our growth story in urban areas is still intact. It is the rural markets that accounts for more than 50 per cent for us, that has not been so good," he said. "Particularly in the last three months, growth in rural markets has lagged urban markets. My understanding is it is because prices of farm produce are depressed. Then migrant and contractual workers who used to send money back home in the small towns and villages have probably lost jobs, so that has an impact. We have not seen a distress like this in the rural markets in 16-17 years that I have been at the helm."
With the festive season kicking in last month, consumption pattern generally peaks around this time but Wipro is yet to see any significant spike in demand.
"Erratic rains this year has played spoilsport. We have not seen a good Onam or a Ganesh Chaturthi," he said. "In the first 10 days of October as well, there has not been any significant improvement but Navratri is not a very important period for us. But Diwali is so we have to see. It is difficult at this point to say when there will be a turnaround. Nobody has an answer to that."
Market Research firm Nielsen had also highlighted a slowdown in growth in rural markets in its quarterly insights report in June where it had revised its growth projections for the overall FMCG sector downwards to 9-10 per cent from 11-12 per cent for 2019.
In the April-June quarter, Nielsen had said rural growth had dipped to 10.3 per cent from 12.7 per cent clocked in the year-ago period.
"Rural India has historically been growing around 3 to 5 percentage points faster than urban on account of increasing affordability, availability and demand. However, rural growth is slowing down at double the rate of urban in recent quarters. This has brought rural growth closer to urban growth in Q2-2019," the report had said.
Wipro's performance in the July-September quarter only reiterates that.