FMCG Cos Brace for Ra­tioning in CSD Can­teens

Sin­gle-largest buyer of con­sumer goods may put lim­its on sale of prod­ucts

The Economic Times - - Front Page - 26% 23%

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.

MON­E­TARY EAS­ING

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

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