High inflation is not just a research figure fueling the economic debate. It has a real, negative impact on the daily lives of the masses. In this respect, fast-moving consumer goods (FMCGs) that are bought daily have seen lower sales through June, compared to the previous month of May. From biscuits and shampoos to tea and toothpaste, retail tracker Bizcom reported a fall in sales of 3.1% in urban areas and 0.2% for rural areas for June. The fall in urban sales was mainly impacted by Tier-2 cities where sales shrank by 7.5%. Even in the height of summer, sales of white goods such as air-conditioners and refrigerators fell up to 15% in sequential months, showing a high level of belt-tightening by consumers.
One of the reasons for the falling sales is the price-led growth FMCG companies have been opting for to increase revenue and better bottom lines. FMCG companies are facing higher input costs, and they have been passing these on to consumers with disastrous effects. These companies, with all their market research, should have figured by now how price sensitive the Indian consumer is. High inflationary pressure in the first half of this year, coupled with a poor job market, has forced the Indian consumer to postpone purchases and cut back on consumption.
The fall in FMCG sales is also a worrying indicator of the drop in the quality of life of the Indian consumer, as he desperately seeks to balance his household budget. This is coming round to bite FMCG companies. They have realised a precipitous fall in consumption due to high prices is hurting their bottom lines, and many are shifting back to consumption-led growth.
Given the high inflation, these companies must squeeze their margins to keep prices in check and to stoke demand. The government can help too by reducing Goods and Services Taxes (GST) on essentials to either zero or the 5% slab. Industry bodies have rightly stated that now is the time for ‘zero’ tax on items such as health care services and deplored the 5% levy on hospital rooms.