Rain Rain Come Here...

 

 

Finance Minister, Pranab Mukherjee while delivering his much-awaited Union Budget Speech on July 6, 2009, is most likely to introduce a special monsoon policy package for uplifting the rural economy following the Met Department’s forecast of below normal monsoon this year. The fact that the monsoons have been delayed by 15-20 days in most parts of the country has not only severely impacted the rural farmer’s hopes of tilling land and cultivating food crops; the warning over the threat from El Nino has further worsened the situation. In such a scenario, plans of most of the Indian industries viz. fast moving consumer goods (FMCG), automobiles, consumer durables, et al, which were hitherto bullish on their rural summer sales to leverage growth opportunities from rural markets have also gone for a toss. The Indian FMCG industry, which grew by 16.9% in April-May, 2009 as opposed to 19% growth during the same period last year (as per Nielsen) is expected to be hit due to delayed monsoons. But is the situation under control for the Indian FMCG-behemoths like Hindustan Unilever Ltd., Godrej, ITC, Dabur, et al?

The Indian rural market, which largely constitutes of farmers involved in agricultural activities, contributes a large chunk of sales of FMCG companies. While Dabur draws 75% of its sales from rural areas; HUL, Godrej Consumer Products Ltd. (GCPL) and ITC too achieve almost 50% of their sales from rural markets. “Rural India has become extremely important for all sectors including FMCG. Any set-back in sales from these areas will majorly impact the toplines of companies,” says Tushar Bhattacharya, FMCG Analyst, FICCI. Over 60% of India’s workforce is dedicated to the agriculture sector, which accounts for 18% of India’s GDP. If monsoons are delayed, the income and therefore the purchasing power of rural Indians will definitely be impacted. A fortnight’s delay in monsoons has already impacted the agricultural output by 10-12%. From the economic point of view too, bad monsoons will lead to a fall in the GDP growth. The tumultuous economic slowdown has severely impacted the services and the manufacturing sectors and therefore, the government was hoping for good monsoon to boost the agriculture growth. Poor monsoon will lead to bad agricultural output and less income of rural Indians to purchase FMCG, auto, consumer durables, et al and therefore a GDP growth of 6% will be far from cry. “It’s a vicious cycle. The Indian economy is inter-dependant on various factors such as manufacturing, exports, agriculture. Monsoon is also an imperative for the growth of the economy,” says a Mumbai-based analyst. Poor monsoons may also lead to high prices of agricultural products. Industry insiders feel that if monsoons are delayed further, the FMCG industry may witness 9-10% growth in July-August period.

Be that as it may, the FMCG companies do not seem much perturbed at the context of delayed rains. Top honchos of FMCG firms like Dabur, HUL and GCPL have voiced out that although monsoons are delayed, it is not yet a cause of concern. Delayed but evenly spread and spaced out monsoons can give relief to the economy. For now, FMCG companies are not revisiting their strategies for this summer season and are hopeful that the monsoon will arrive in another week or ten days time. While on one hand, few FMCG companies are pinning their hopes on temporal monsoons, there are others who have made the most of the weather. Take for instance, Amul, whose ice-cream sales have shot up by 40% in June 2009 due to the scorching heat and temperatures soaring up to 45 degrees. Refrigerators and air-conditioners have also done a brisk business this season.

In the worst case scenario, that is if monsoons refuse to grace mother earth, all hopes rest on the Finmin’s special monsoon policy package. Under this, areas, which are most likely to be affected by delayed monsoons may be allotted a higher budget through PDS and the NREGS. A report by Edelweiss suggests that, “On an immediate basis, the government can expand the reach of NREGA to create employment opportunities for those rendered jobless by the weather-aberrations, especially in specified drought-prone areas.” Monsoons have always played a hide-and-seek game with Indian companies. Take for instance last year, when monsoons hit the Indian shores as early as May. The sales of companies like Coca Cola, Amul, Pepsi, Baskin Robbins, et al, were severly impacted. Says R. S. Sodhi, General Manager, GCMMF, “Our ice-cream sales are impacted by 20-25% during rains and it started raining in May itself in 2008.” Well, at this juncture, there is nothing much that FMCG companies can do but wait for the monsoons before singing, “Rain rain go away, come again another day, little Arthur wants to play!”