MUMBAI|KOLKATA: The average growth rate for daily groceries as well as discretionary items such as cars and two-wheelers were lower under the National Democratic Alliance (NDA) government compared with the second term of the Congress-led United Progressive Alliance regime while large electronic goods including televisions, washing machines and refrigerators, on the contrary, logged faster growth.
According to annual growth data for the past 10 years by WPP-owned research agency Kantar Worldpanel and Society of Indian Automobile Manufacturers (SIAM), while the actual consumer demand or volume growth for FMCG products and passenger vehicles rose consistently since 2014, growth either faltered or declined in most segments over the past two years following the introduction of the goods and services tax (GST) in July 2017, patchy monsoon rain and a higher base, which in turn, dragged down the average growth rate.
For instance, the fast-moving consumer goods (FMCG) market grew 3.1% on average for five years starting 2014 despite a decline of 1.1% last year. In comparison, the consumer goods segment grew 4% in 2009-13.
“Policy decisions such as GST or demonetisation (November 2016) caused short-term disruption in consumption growth but will boost demand over a longer period,” said B Krishna Rao, senior category head at Parle Products.
Demonetisation and the rollout of the single producer levy had upended consumption and stocking patterns across the consumer goods segment. This was followed by a weak macro environment including moderation in GDP growth and wage inflation. It should be noted that auto industry data is for the relevant financial years while that for other consumer segments relate to calendar years.
During the second term of the UPA government (2009-14), overall FMCG growth also stemmed from rising rural disposable incomes, following three consecutive years of good agricultural growth and the jobs programme. However, two straight years of deficient monsoon rain starting 2014 stalled growth in the rural markets, home to more than 800 million people whose purchase behaviour is largely linked to farm output. It was followed by long periods of low food inflation that depressed rural consumption since mid-2015, say experts.
A recent report by Citi research said a modest reversal in food prices could help rural consumption growth and the effectiveness of welfare schemes will be crucial. “With subdued agriculture activity and depressed rural wages, revival of these programmes post-election would be a key factor for rural consumption growth. The success of these programmes in lifting rural demand after the elections would critically depend upon budgetary support and ability to remove local bottlenecks,” the report said.
The average annual growth rate under the NDA regime for cars and two-wheelers was 6.2% and 7.2%, compared with 11.8% and 13.8% in the UPA’s second term. That was thanks to healthy rural incomes and pay commission implementation with the auto industry insulated from the effects of the global financial crisis due to a stimulus programme.
While the second term of the UPA government was a tale of two extremes, the current NDA regime has been all about steady organic growth through various disruptions, said Aswin Kumar, programme manager, mobility (automotive and transportation) at Frost & Sullivan.
“The recent slowdown has been triggered by increase in cost of ownership due to liquidity crunch, insurance and fuel price hikes, some of which may not be under government control,” Kumar said.
With about 15 million cars and 50 million two-wheelers added in five and seven years, respectively, traffic congestion has surged. Meanwhile, the rise of shared mobility platforms such as Uber and Ola have provided alternate means of transport, impacting car purchases. Maruti Suzuki, which controls half the car market in the country, saw sales slow in FY19 after four consecutive years of double-digit growth.
“Rural growth has sustained even as there has been slowdown in some urban areas,” said Maruti Suzuki chairman RC Bhargava. “The current government has addressed some fundamental issues and there are a number of policies being put in place to deliver long-term growth.” GST and simplification of the tax regime will have a long-term positive impact on the automotive sector, he said.
While rural markets dragged the consumer products market down, companies said changes in taxation and government initiatives over the past five years have triggered faster growth in electronics under the NDA government versus the previous UPA term. For instance, televisions grew 10% while washing machines and refrigerators rose 11.5% since 2014 on average compared with a decline of 4% in televisions and 10% growth in each of the other two large appliance groups.