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PMCG sector growth can spur rural development, says study

Growth in packaged mass consumption goods, or PMCG, sector would spur rural development, a study conducted by the Confederation of Indian Industry, or CII, and McKinsey and Company has said.

The study on 'Repositioning the Indian PMCG sector' said that the sector had vast unfulfilled potential for growth and per capita consumption of PMCG can grow significantly and rapidly.

The CII is concerned about the widespread view that the PMCG sector produces luxury products targeted at the elite, and was insignificant in terms of employment, growth, and contribution to overall economic and social development.

The CII-McKinsey study said this was not correct. It said over 60 per cent of the customer base for PMCG comprised low and lower middle income consumers with the sector being the second highest direct employer in the country responsible for employment of 3 million people in the downstream sector.

The study said that the sector was strongly linked to agriculture, with 71 per cent of sales coming from agro-based products.

The PMCG sector is a key contributor to the exchequer, second in market capitalisation only to the infotech sector. It is also a positive net exporter and an efficient user of capital, it added.

The CII-McKinsey study suggested three key government initiatives for long-term growth in the PMCG sector.

Firstly, it urged that urgent steps be taken to resolve direct and indirect tax anomalies affecting the sector. Import tariff inconsistencies between raw materials and finished goods have to be reconciled, and PMCG should be granted 'merit' and 'general' tax status at the central and state levels, respectively. These steps would make PMCG much more affordable.

Secondly, the study recommended that a comprehensive competitiveness-building strategy be undertaken for the PMCG sector. This includes reviewing the public distribution system, or PDS, to complement PMCG distribution, removal of small-scale restrictions, investment in technology to improve product innovation and quality standards, and steamlining of the legislative processes that need to be undertaken by those operating in this sector.

In particular, the government should start the process of restructuring the small-scale reservation policy right away, as it is a major restriction on achieving efficiency, it said.

The study said that the country's small-scale reservation policy had become largely irrelevant as many of the reserved products, including several goods in this sector were not only restricted from attaining economies of scale, they also had to compete against imports that do not face the constraint of small-scale reservations.

The study urged the government to undertake a concerted crackdown on spurious products, because free import resulted in fake goods flooding the market. In addition, a joint industry-government initiative should be taken to encourage building a 'Made in India' brand for PMCG.

It also said that progress needs to be made to package materials better, as a large number of goods were easily perishable. The government must facilitate more research and development in packaging materials, as this will go a long way in cutting wastage and costs.

The possibility of a longer shelf life will also encourage production of goods of higher value addition by companies in the sector, the study said.

Lastly, the CII-McKinsey study recommended that rural linkages to the PMCG sector must be built up. Rural distribution systems should be improved, and rural connectivity must be made viable in terms of cost.

The study also advocated harmonisation of indirect tax structure across states, as the competitive advantage of a large Indian market was greatly reduced by having different tax laws in different states.

UNI

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