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MNREGA and FSA what it means for FMCG marketers

, May 17, 2014, 0 Comments

MNREGA UPA FMCG-MarketExpressUPA government would be remembered for introducing populist schemes like MNREGA and others. Also its inability to tackle the challenges faced by the Indian economy – unemployment, inflation, non implementation of policy and corruption.

One of the salient benefits distribution schemes is enhancing the livelihood security of rural people by guarantying hundred days of wage employment in a financial year to every rural household adult who volunteer to do unskilled manual work. This if correctly implemented would put something like Rs 24000 p.a( 4 adults @ Rs 60 per day for 100 days work) into the hands of families from R3/R4 segments which constitute around 80% of the rural poor. The populist measures which seem to be the talking points of the governments of the day.

The ruling party’s highlighted achievements of social equity through empowerment and benefits distribution schemes like MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act)and FSA (Food Security Act) are surely laudable in their intent but just look at their execution and the results on the economy as a whole.

So we will have a large potential market for branded FMCG (Fast Moving Consumer Goods) products. The FMCG majors have been banking on this potential market to translate into sales volume, it is not to say that they are not doing their marketing bit – be it introduction of single serve/small value packs, ramping up the rural distribution and aggressive promotions, all this has not yet shown the promise.

Some studies of MNREGA showed FMCG firms have been relying on rural demand growth to bolster their top line but the reduced allocation to the Mahatma Gandhi National Rural Employment Guarantee Scheme (NREGA) for the next financial year and uncertainty over how the FSA will be implemented by the incoming government could see growth in FMCG sales in rural areas being crimped, according to industry experts.

Latest results of FMCG majors bears this out – HUL’s volume shrinking by 3%in March quarter(2014)  or Godrej recording a 29% fall despite a 12% growth all points to an adverse impact in the rural areas in the second quarter. Traditional rural economy depended exclusively on the monsoons for agricultural output, but now many parts of the rural economy depends on additional income from local and MNREGA schemes, remittances from migrants and such other sources, so the current threat of less-than-average south west monsoon, El Nino effect too may not become a major cause of worry to the FMCG companies.

The reality of growth numbers must be seen in proper context, although India’s GDP growth hovers around the 5% mark; the inflation is high and with stalling industrialization it is becoming harder for workers to get jobs. With the creation of 90 million jobs over next 15 years being the imperative; it is very difficult to envisage a scenario where the entitlement-based model of upliftment of the rural poor can be sustainable.

These are developments which may eventually cause the demand to drop, such as lower realization or support prices in some crops and, more importantly, and slowing down of prosperity inducing-schemes like MNREGA.

Even in these schemes, spending has not fully materialized. Last year, the government had only utilized Rs 31,000 crores out of the allocated Rs 40,000 crores.

The Union finance minister had, while presenting the budget, acknowledged the role of MNREGA in effectively setting a floor wage for rural labor, thus having a salutary impact on their income.

While MNREGA will play a catalytic role, the long term solution to bolster rural demand lies in improving macro economic variables like agricultural investments, credit, and reducing inflation. A structural change in the economy needs more than just the policy push. It needs a strong bias for execution as is evident from all successful products, brands and projects.

ABOUT THE AUTHORS | The views expressed are personal.

Prof. Sarika Rachuri
Sarika Rachuri is a faculty in Economics with IBS Mumbai. She has 16 years of varied experience in academics, research, training and consultancy….more



Prof.Hemant Purandare
Hemant Purandare is a faculty with IBS Mumbai in area of Marketing and Service Management….more