Exclusive: What FMCG Sector Expects From The Upcoming Budget 2024?

As the 2024 Union budget is set, the FMCG sector eagerly anticipates measures that can significantly push India's overall economy toward the upward slope. The Fast-Moving Consumer Goods sector consists of many products ranging from food and beverages to personal care and household items. However, post 2024's Interim Budget, the entire industry is hoping to witness a more stable market and expects measures that will be highly progressive and transformative.

One of the primary expectations of companies from the upcoming budget is the rationalization of the Goods and Services Tax (GST). The FMCG sector, dealing with essential goods, hopes for a reduction in GST rates, particularly on daily necessities. Lowering the GST on products like packaged foods would not only make these goods more affordable but also spur consumption, leading to higher sales volumes. Ever since the pandemic, consumers have become conscious about their spending so a measure like this can be beneficial for the economy.

A recent report claims that the product realizations in FY25 are expected to grow in the low single digits with a marginal rise in prices of key raw materials for the food and beverages (F&B) segment.

Additionally, the reports further claim that the entire FMCG sector expects to see an overall revenue growth of (7-9)% this fiscal year, driven by increased sales volume and a revival in rural markets. Today, the F&B segment accounts for nearly half of the overall FMCG sector's revenue.

"Talking about India's consumer industry, over the years the entire sector has grown exponentially. The major credit behind this goes to the continuously growing young population of the country and the growing progressive purchasing power. However, there is a huge gap in consumption between urban and rural areas. This gap can be filled if the union budget emphasizes rural job creation, incentivize capital expenditure, and promotion of innovation. Furthermore, significant resources should be dedicated to supporting exports and job creation in both rural and urban areas. This will boost local production and create a resilient and inclusive economy," said Shammi Agarwal, Director at Pansari Group.

Also, increasing employment generation programs and skill development initiatives for the rural youth can diversify income sources, reduce dependency on agriculture, and increase the overall purchasing power.

Meanwhile, according to Motilal Oswal, in the first quarter of FY25 (Q1FY25), companies within the Motilal Oswal Financial Services Limited (MOFSL) coverage universe (FMCG sector) are expected to showcase strong performance, driven by resilient demand trends and strategic initiatives across various sectors.

The analyst predicts a notable year-on-year growth in revenue and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) for its coverage universe. Revenue is anticipated to grow by 7.8%, reflecting steady consumer demand and strategic pricing maneuvers. EBITDA is expected to follow suit with a growth projection of 9.2%, underscoring improved operational efficiencies and cost management across sectors.
Motilal Oswal has recommended HUL, Godrej Consumer Products Ltd (GCPL), and Dabur as top picks from the FMCG sector.

Lastly, the budget's focus on rationalizing export and import duties on food items will be extremely crucial in boosting the economy of the country. India accounts for around 40% of rice exports worldwide and is the third-largest exporter of mustard oil in the world after Canada and China. Therefore, adopting strict standards like those in the US or Europe is important as it will not only boost the entire FMCG industry but will also make sure that Indian products can compete with the best in the world, added Shammi Agarwal.

In short, the upcoming budget holds significant potential to shape the future of the FMCG sector. By addressing these expectations, the government can create a conducive environment for growth, innovation, and sustainability.