Higher borrowings through informal or unorganised sources in rural India has impacted their ability to spend. Many are now repaying this debt taken during the pandemic days leading to a possible spending slowdown, says CK Ranganathan, Chairman and Managing Director, CavinKare Pvt Ltd.
However, “some green shoots are visible” with there being improvement in March numbers over February; and there is a hope that these numbers will sustain on the back of improved monsoons and the return of migrant labour to cities thereby improving rural remittances.
“In the FMCG sector, we have seen a blip in March. I hope it is not a blip, but an upward trajectory,” Ranganathan told BusinessLine adding that: “See, agri-commodities are doing well, there were good monsoons. Migration was not an issue earlier. So my hypothesis is that its the labour force and their individual borrowings.”
According to him, some of the labour-intensive MSMEs had a hard time during the pandemic due to implementation of GST. Evasions are down, thereby pushing up operating costs for the sector, which led to some of them cutting down on workforce or shutting shop. This trickled down to hit demand since majority of the workforce are from rural India.
With borrowing cycles up for repayment, there is a stress which is likely to be there for some time .
“So this (individual borrowings) is in the unorganised sector and is hardly accounted for in government numbers. We need to wait and watch if recovery (rural) is a big jump up or slowly inching upwards,” Ranganathan said.
Despite economic recovery being better across most of the sectors and some “beating pre-Covid levels comfortably”, margin pressures continue.
High oil price-led inflation apart, the other big worry has been “mega cross-border cartelisation across all commodity prices”, especially in sectors where the number of players are limited.
“One fall out of the pandemic is mega cartelisation across commodity prices. And now its a cross-border cartelisation. And this is likely to continue for some time. They have tasted blood now,” he said.
“And so the year ahead (FY23) will be dominated by price management,” Ranganathan added.
Companies were unable to take price hikes fully to mitigate inflationary effects as they fear it would impact demand. Sachets a segment that CavinKare pioneered in India (with its 50 paise packs) is where price points have hardly changed.
“In 1998 we launched the 50 paise shampoo sachets and the ₹1 price point was there since 1980s. There has been no change in these segments for decades now. The only change, is a ₹2 pack which is doing well. So margins are under pressure for all of us and we have to manage through price rise in less sensitive categories. Or in larger SKUs,” Ranganathan said.
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