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LATEST NEWS UPDATES | Cut in NREGA allocation may hit FMCG firms-Meghna Maiti

Cut in NREGA allocation may hit FMCG firms-Meghna Maiti

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published Published on Mar 26, 2012   modified Modified on Mar 26, 2012

The reduced allocation to the UPA government’s flagship rural programme NREGA could see revenue growth in the FMCG sector falter.

Consumer staples firms have been relying on rural demand growth to bolster their top line but the reduced allocation to the Mahatma Gandhi National Rural Employment Guarantee Scheme (NREGA) for the financial year 2012-13 could see growth in FMCG sales in rural areas being crimped feel industry experts. Finance minister Pranab Mukherjee reduced allocation of NREGA to Rs 33,000 crore in the FY13 from Rs 40,000 crore in FY12.

“We could see bit of an adverse impact in the rural areas in the second quarter. Yet a lot depends on the monsoon and agricultural output,” said Rashmin Joshi, president and director-personal care products at VVF. The company that sells soap brands such as Jo, Bacter Shield and Doy, draws 78 per cent of its revenue from non-urban areas.

“There are developments which may eventually cause the demand to drop, such as lower realisation or support prices in some crops and, more importantly, slowing down of prosperity inducing-schemes like NREGA. But, as of now, there is at best only a mild evidence of a secular demand drop,” Milind Sarwate, group chief financial officer and chief human resource officer at Marico had told Financial Chronicle earlier.

However, analysts say it is important to wait and watch for the amount the government actually spends from the NREGA allocation. “A lot would depend on monsoon rainfall, food security bill and other rural schemes,” said Abneesh Roy, associate director at Edelweiss Capital. Last year, the government had only utilised Rs 31,000 crore out of the allocated Rs 40,000 crore, added Roy. Union finance minister had, while presenting the budget, acknowledged the role of the NREGA in effectively setting a floor wage for rural labour, thus having a salutary impact on their income.

To combat the expected challenges, FMCG firms are adapting their rural strategies. Parle Products, maker of biscuits such as Parle-G and Monaco, plans to increase its distribution in rural areas, reduce prices and introduce more lower-unit packets to offset the pressure on rural growth. “This will have some impact in rural areas within six months,” said Pravin Kulkarnii, general manager-marketing at Parle Products.

Marico has been trying to deepen its rural penetration by increasing distribution, betting big on Nihar Shanti Amla that has gathered a market share of close to 20 per cent by the end of third quarter of FY12. “We believe that focusing on basics itself provides a fillip to demand from rural areas,” added Sarwate.

The Financial Chronicle, 25 March, 2012, http://www.mydigitalfc.com/news/cut-nrega-allocation-may-hit-fmcg-firms-959


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