NEW DELHI: FMCG brands are suffering a significant sales hit in rural India following recent demonetisation efforts by the Indian government, but are hopeful the chaos will ease eventually.
Prime Minister Narendra Modi's law to demonetise ₹500 and ₹1,000 banknotes, which aims to flush out untaxed 'black money', has hit India's rural areas particularly hard. With 86% of the country's cash now useless and low internet penetration rendering digital payments difficult, business outside the cities is grinding to a halt.
India's biggest FMCG companies, such as Godrej, are finding sales in rural areas flagging as a result but are hopeful that the chaos is a temporary phase and that sales will bounce back as more legal cash becomes available.
"Since the rural economy is largely cash-based and wholesaler dependent, the large cash crunch has led to a slowdown in rural sales," said GCPL managing director Vivek Gambhir, in comments to the Economic Times.
"We believe though that the slowdown is temporary," he added. "We expect that as the liquidity situation improves, rural (segment) will start showing better growth."
Overall, the company believes "the demonetisation move will be good for the Indian economy in the medium to longer term".
The company has also been investing in omni-channel retail strategy to diversify over the past year, and is optimistic it can weather the economic storm. (Read more about how businesses are tackling this area in Warc report: How India's FMCG giants are approaching omni-channel and big data.)
The government has also rolled out new incentives to encourage digital payments recently. With this sector booming since the banknotes were rendered obsolete, digital payments companies have every reason to be optimistic – at least until more cash becomes available. The value of digital payments has surged since demonetisation was announced on November 7, from Rs 52 crore daily (just under US$7.7m) to Rs 191 crore daily (US$28.2m) in December.
Data sourced from Economic Times; additional content by Warc staff