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Rural demand is expected to recover gradually from March

New Delhi: Rating agency Crisil said on Tuesday that it expects a recovery in rural demand in the country from March-April onwards owing to an increase in farm incomes, good monsoons and improving urban demand.

“An expected recovery in rural demand, coupled with steady urban demand, is set to lift revenue growth of the Rs 4 lakh crore fast-moving consumer goods (FMCG) sector to 10-11 per cent in fiscal 2021, close to the levels witnessed in fiscal 2019,” Crisil said in a report.

Rural demand is expected to recover gradually from March-April 2020, the rating agency said, given better storage levels in reservoirs and a better rabi output.

CRISIL Ratings Senior Director Anuj Sethi said in a statement: “Next fiscal, growth in rural FMCG revenue will recover to 11-12 per cent from lows of about 8-9 per cent in fiscal 2020, largely driven by better agriculture GDP growth”.

CRISIL’s analysis of 57 FMCG firms, which account for close to half the industry revenues, however, shows that the rate of revenue growth may not be uniform across firms.

“The packaged foods segment, which accounts for nearly half of the FMCG sector’s revenue, will continue to grow the fastest – at 9-10 per cent this fiscal and 11-12 per cent in fiscal 2021 – driven by increasing shift to branded products and deeper penetration of product segments,” the report said.

According to Crisil, the personal and home care segment, which accounts for a third of FMCG revenue, is also likely to see recovery in growth to 8-9 per cent in fiscal 2021 from 6-7 per cent in fiscal 2020.

Growth in personal and home care will be lower than that of packaged foods, given the former’s relatively more discretionary-spend nature and the higher penetration of these product categories.

Commenting on the current fiscal, Crisil noted that sales of FMCG products have been impacted by slack rural demand and the liquidity squeeze that has affected wholesale channels.

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