FMCG growth to slow down to 11-12% in the election year: Nielsen

The fast-moving consumer goods (FMCG) industry is expected to grow at 11-12% in 2019, slower than last year, according to market research firm Nielsen. The industry registered a healthy 13.8% growth in 2018, beating Nielsen’s estimate of 13%.

“Historical trends around elections in the last few years suggest that FMCG industry demonstrates stable to marginally lower growth in the election year,” Nielsen said in a report released on Tuesday.

The growth in the FMCG sector will be led by food (12-13%), followed by personal care and home care items at 10-11% each.

“Historically, it [FMCG growth] was either at par, which means that there was no significant impact on the FMCG industry, or it was a tad lower [in an election year].  However, what happened in the past may or may not repeat in the future. With various populist measures that the government announces, we all will be keenly watching how it pans across on ground,” Sameer Shukla, executive director of Nielsen India, told Fortune India.

With the settling of two major economic reforms—demonetisation and Goods and Services Tax (GST) roll out—the FMCG sector saw healthy consumption growth driven by higher volumes. “Contribution of volume led growth jumped to 77% in 2018—a 13 percentage point jump over that in 2017,” Nielsen said in the report.

However, interestingly, the October-December quarter registered a reversing trend, wherein one-fourth of total 15.9% growth for the industry was contributed to price growth—the highest across the four quarters in 2018.

Meanwhile, India’s GDP growth is expected to be 7.5% in 2019. However, consumer price inflation (CPI) is expected to incline towards 5%, as against the downward trend in 2018—from 5.2% level in January-March quarter of 2018 to 2.1% in October-December quarter 2018, and will have an impact on the projections.

Policy dynamics around e-commerce and the way (local and MNC) e-tailers respond to it; the quantum of foreign direct investment (FDI) India attracts in the face of changing global trade dynamics; prices of crude oil and commodities like palm oil and copra; and the strength of rupee exchange value will also have significant impact on the projected growth, the report said.

The FMCG sector delivered a stellar performance in the second half of the calendar year (July to December) as the industry breached the 16% growth mark.

“On that high base, second half of 2019 is projected to have high single digit growth for the industry, while the first half of 2019 will touch 13-14% growth level,” the report added.