High inflation isn’t just a research figure fueling the economic debate. It has a real, negative impact on the daily lives of the masses. In this context, Fast Moving Consumer Goods (FMCGs) purchased daily recorded lower sales in June than in the previous month of May. From cookies and shampoos to tea and toothpaste, retail tracker Bizcom reported June sales fell 3.1% in urban areas and 0.2% in rural areas. The drop in urban sales was mainly impacted by Tier 2 cities, where sales fell by 7.5%. Even in the height of summer, sales of home appliances like air conditioners and refrigerators fell by up to 15% in consecutive months, showing consumers are tightening their belts.
One of the reasons for the decline in sales is the price-driven growth that FMCG companies have opted for in order to increase sales and generate better results. FMCG companies face higher input costs which they pass on to consumers with disastrous consequences. With all their market research, these companies should have figured out by now how price-sensitive the Indian consumer is. High inflationary pressures in the first half of this year, coupled with a sluggish labor market, has forced the Indian consumer to delay purchases and cut consumption.
The drop in FMCG sales is also a worrying indicator of the decline in the quality of life of the Indian consumer who is desperate to balance their household budget. This will bite FMCG companies. They have recognized that a precipitous drop in consumption due to high prices hurts their bottom line, and many are shifting back to consumption-led growth.
With inflation high, these companies are having to squeeze margins to keep prices under control and stimulate demand. The government can also help by cutting taxes on goods and services (GST) on bare necessities to either zero or 5%. Industry groups have rightly stated that now is the time for a ‘zero’ tax on items such as health care, and regret the 5% levy on hospital rooms.