FMCG Cos Brace for Rationing in CSD Canteens
Single-largest buyer of consumer goods may put limits on sale of products
CSD stores contribute to of annual FMCG sales
HUL is CSD’s biggest supplier and accounts for close to
of its annual sales Ratna Bhushan & Sagar Malviya Price differential between retail and CSD stores: likely on sales of some items to rein in alleged misuse
New Delhi | Mumbai: Consumer goods makers are gearing up for a drop in their highvolume Army Canteen business, as they expect the government to impose restrictions on sales of items through this network of 3,900 stores to rein in alleged leakage and misuse. The Canteen Stores Department (CSD) is the single-largest customer of consumer goods companies in the country, and 5-7% of FMCG sales take place through its outlets. Stores run by the state-owned CSD typically sell goods at prices that are 10-40% lower than in regular retail stores to armed ser-
vices personnel, both serving and retired, and their kin.
There is already a limit on purchases by CSD card holders but that hasn’t stopped discounted products being bought by some in excess of their needs. “The proposal is to ration sales through CSD channels by anywhere between 20-40% on high-offtake products and the rationing will be staggered across different categories,” said a consumer goods company executive, who is aware of the government’s plans. “Though the cap exists, the proposal is to increase it further.”
“This is perhaps going to shrink our CSD business,” Dabur chief executive Sunil Duggal said in an investor call late last week.
5-7% of FMCG sales take place through CSD outlets; cos say sales target will be met through other channels
It also called for farm sector reforms to counter deflationary tendencies weighing down the economy. The early presentation of the budget this year had forced the Economic Survey to be split in two parts. The first part, the analytical one, was presented during the budget process. The second part, containing more of a backward-looking review, was presented in Parliament on Friday. The survey warned of “exuberance” in the financial markets, pointing out that the price-earnings ratio of Indian stocks is “substantially greater than the long-run average of 18 and not far from the frothy level reached in 2007”.
The survey said there is “optimism about medium term and gathering anxiety about near-term deflationary impulses”. Optimism has been rekindled on structural reforms and there is growing confidence that macroeconomic stability has become “entrenched,” it said, attributing this to government and RBI actions and structural oil market change.
GST, put in place on July 1, the inprinciple decision to privatise Air India, further rationalisation of energy subsidies and action to address the twin balance-sheet challenge — the bad loan burden on banks and companies — have rekindled optimism on structural reforms.
This optimism — and its frothy variant, “exuberance” — is balanced by deflationary tendencies because of which the economy is “yet to gather its full growth momentum” and is “still away from its full potential”, the survey said. Farm loan waivers will disrupt state government finances, the survey said, estimating this at as high as .₹ 2.7 lakh crore. They “could reduce aggregate demand by as much as 0.7% of GDP, imparting a significant deflationary shock to an economy yet to gain full momentum”, it said.
The short-term costs of demonetisation, real exchange rate appreciation, stressed farm revenue because of low cereal prices, lower telecom and power sector profitability causing more stress to banks and transitional friction from implementation of GST are other possible hurdles for the economy.
On the positive side, there is some upside from GST and measures to address the twin balancesheet issue.
The survey said India may be entering a new era of low inflation, attributing it to the deep, technology driven shifts in international energy markets and improvements in domestic policy and agricultural markets. Good rainfall is expected to keep food inflation in check while GST is expected to re- duce prices through the lower incidence of tax.
The survey expects inflation to be well below RBI’s target of 4% by March 2018. Consumer inflation was 1.5% in June. The average inflation is seen at 3% in FY18. It said real policy interest rates are elevated and higher than in other emerging markets.
The survey said the fiscal outlook for the year is uncertain because of reduced revenue from slower-than-anticipated nominal growth, reduced GST collections, lower telecom spectrum receipts and increased expenditure of ₹ 30,000 crore on account of the seventh pay commission awards.
“Accordingly, the magnitude and pace of final consolidation relative to the commitments made may need to be assessed going forward,” the survey said. The government has budgeted a fiscal deficit of 3.2% of GDP for FY18.
Good rainfall is expected to keep food inflation in check while GST is likely to cut prices