Source : Live Mint

The consumer goods market in India, muted because of high inflation, could be hit further by a deficient monsoon, said experts. “It will take time for the consumer to start spending,” said Sumita Kale, chief economist at Indicus Analytics Pvt. Ltd.

“If they see some hope and positive signals coming from the budget, from monsoon forecasts, they will start spending.” In the June quarter, the broader markets have turned positive. However, “the change in sentiment has yet to translate into spending”, said Gaurav Gupta, senior director at Deloitte Touche Tohmatsu India Pvt. Ltd.

After nearly eight quarters, the Consumer Confidence Index rose again in the March quarter. “We believe this could be a lead indicator of demand growth, which appears imminent,” said a 14 June Deutsche Bank report. However, if the monsoon is below normal or deficient and if the upcoming 10 July budget fails to fuel spending, the consumer spending pattern this year could be similar to last year’s when consumers bought smaller-sized packs or cheaper variants of usual purchases, said Gupta.

“The maiden budget of the new government must focus on taking tough steps to revive the economy and regain consumer confidence,” said Govind Shrikhande, managing director of Shoppers Stop Ltd. He expects the government will take steps to implement the Goods and Services Tax (GST) in the budget.

In June, the rainfall was 43% lower than normal, a deficit that has already caused the prices of vegetables, fruits, rice and milk to shoot up. “Soaring prices of basic goods such as milk and potatoes lifted retail food inflation in May to 9.40% and there are fears of worse to come,” said a 1 July report by Reuters.

Besides poor rainfall, the increase in crude oil prices, which on an average rose by close to 5% in the June quarter over the year-ago period, is also worrisome, said Kale. To be sure, the rural economy’s dependence on monsoon has decreased in the past decade. But the “monsoon still has an impact on consumer sentiments and impact demand,” says Chitranjan Dar, chief operating officer of the foods division of ITC Ltd.

The rainfall deficit will put pressure on commodity prices and this will lead to inflation in the manufacturing sector, said Hemant Rupani, vice-president of sales at Britannia Industries Ltd. In turn, firms will have to absorb a part of the rising costs.

The Indian consumer has cut back on small and discretionary spends, in the past 12-18 months, hit by high inflation and slowing economic growth. As a result, the rate of growth of the retail sector and consumer packaged goods sector was slower in the last fiscal than the year-ago period.

The Rs.2.18 trillion consumer packaged goods industry’s growth had halved to 9.4% in 2013 from 18% a year ago, said Nielsen, a market researcher Consumer stocks have underperformed the broader market because of rich valuations and a dim outlook.