Demonetisation, GST continued to impact India's consumption story in 2019

Demonetisation, GST continued to impact India's consumption story in 2019

The number of unemployed reached an all-time high in 2019 and thus impacted consumption. To add to this, the government's spending in rural India was well below satisfaction

The year 2019 has been one of the slowest for the consumption sector in over a decade. Consumer products companies had to cope with low single digit volume and revenue growth quarter-on-quarter and several industry experts had expressed despair by saying that Indians were just not consuming whatsoever. Rural consumption was the worst hit.

Why were Indians not consuming? Consumption in India is usually linked to the monsoons and each time monsoon plays a spoilsport, consumption declines. However, this time around it wasn't the monsoons entirely. A trip to rural India revealed that the economy there was still reeling under the impact of demonetisation and GST. There still exists a liquidity crunch in smaller markets. Mantu Jha, a wholesaler of leading FMCG brands in Jharkhand says that sale of large FMCG brands have nosedived and his business has degrown by 30 per cent over the last two years. "People have stopped buying branded products, they are opting for unbranded products simply because they are cheaper. They even buy items such as tea and biscuits loose." Jha quickly clarifies that these people do have money in banks, but don't have money at their disposal. He says that banks in places such as Pathargaon in rural Jharkhand have a beeline of people everyday but they don't have cash to disburse. "The bank manager has called me several times to check if I had some cash that I could deposit, so that he can give it to the waiting customers."

Similarly, Manu Sharma, owner of Ambika Kirana in the outskirts of Indore says that his sales over the last one year has dipped by over 50 per cent. He attributes the dip in sales to several factories in the adjoining area closing down post demonetisation. "People have lost jobs and hence don't have the money to buy. They only buy essentials."

Up North, in the town of Aakera in Rewari, Haryana, Shravan Singh, who runs a general store, an apparel store and a home appliance store, says sales have dipped by 30 per cent over the past few months. "My Deepawali sales in 2018 were good, but there has been a sharp dip after that." Aakera used to have many iron and steel workshops, but those have gone away post the introduction of GST, and migrant labourers have moved out. "Earlier, before they went to their villages, they would buy new clothes, deodorants, belts and hair gels for their family. That demand has stopped completely," says Singh.

The number of unemployed reached an all-time high in 2019 and thus impacted consumption. To add to this, the government's spending in rural India was well below satisfaction. The disbursal of money under schemes such as PM Kisan Scheme, under which 130 million farmers are supposed to receive Rs 6,000 per year, was far from complete. The deadline for completion is December 2019. This would imply a total infusion of Rs 512 million, which could potentially give a fillip to volume growth.

The threat of pink slips loomed large in urban markets too. This resulted in tepid consumption numbers. The run up to the festival season this year saw consumer durable manufacturers and retailers doing the extra bit to woo consumers by offering them extended EMI schemes, a host of freebies and much more. Apart from aggressive EMI schemes, most brands priced their new launches more competitively. Apple, for instance, priced its new iPhone at Rs 58,000, almost Rs 25,000 lower than its earlier models.

There was a mood of desperation as many durable brands and retailers saw negative sales in August and September. Though Dusherra and Diwali saw a 15-20 per cent increase in sales for most consumer durable manufacturers and retailers this year, it was lower than 27 per cent growth the industry had witnessed the year before during the festive season.

Is this depressed consumption mood likely to continue in the New Year? The worst is over, say, veterans. An Edelweiss report expects good news from Q4FY20, when it expects volume growth to bounce back. It says that the recent cut in corporate tax will positively impact most consumer goods companies. "We envisage savings from the tax cut to be utilised towards heightened promotions, ad intensity and retail price cuts, whose positive impact on volume growth should show up from Q4FY20 onwards."

The strong monsoon this year would also have a positive rub-off. "Despite surplus monsoon, our checks suggest the kharif season has not panned out well for agri-input companies. However, high storage across reservoirs remains a silver-lining for the upcoming rabi season - this would lead to better output and collection for farmers thereof. Going ahead, this would aid overall better volume," says the report.

Industry stalwarts at the recently concluded Business Today Mindrush also said that consumption may have dropped from 11-12 per cent to 7 per cent, but the roof hasn't fallen. "I am optimistic about the Indian economy. It may not be a quick fix, but it's certainly not a doomsday," said Suresh Narayanan, CMD, Nestle India. India is an aspirational consumption economy and the CEOs of India Inc felt that it is the duty of the industry to fuel consumption by innovation. "Only those who read pink papers and magazines know that there is a slowdown," said former MD of The Titan Company, Bhaskar Bhat. These veterans also urged the government to increase spends and also invest in creating employment.

As we enter the New Year, the industry expects consumption to revive. The glass should always be half-full, says Anil Rai, MD, Havells India. "We are fortunate that we have a long-term growth story that will play out over the next two-three decades."

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Published on: Dec 31, 2019, 7:30 PM IST
Posted by: Vivek Dubey, Dec 31, 2019, 7:30 PM IST