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The economic slowdown in India has now become so widespread that even consumer goods companies, that sell regular-use items such as biscuits (known as cookies or crackers in North America) are feeling the heat.
The country’s largest biscuit manufacturer, Parle Products Private Ltd, has said it may have to lay off thousands of employees if the current consumption slowdown continues. It has also blamed the government’s skewed goods and services tax structure for its woes.
Parle Products category head Mayank Shah told Economic Times daily that the company has sought a reduction in the goods and services tax, especially for its low-priced biscuits. “But if the government doesn’t provide that stimulus, then we have no choice but to let go of 8,000-10,000 people,” the daily quoted him as saying.
The Mumbai-based company sells popular Parle-G, Monaco and Marie brands of biscuits made in 10 company-owned plants in addition to 125 third party manufacturing facilities. Established in 1929, it employs close to 100,000 people in these plants. Parle Products has annual sales of 100 billion rupees (US$1.39 billion) with more than half coming in rural areas.
The lowest-priced biscuit, which costs less than 100 rupees ($1.39) a kilogram, was taxed at 12% under the previous indirect tax regime. But when the government introduced the goods and services tax two years ago, all biscuits were brought under the 18% tax structure, forcing companies to increase prices. Parle had to follow suit, which led to a significant decline in sales, Shah told the daily.
Market research firm Nielsen had last month said India’s consumer goods industry was losing steam as spending in the rural heartland was cooling off.
Earlier this month, Varun Berry, managing director of Britannia Ltd, a competitor of Parle Products, lamented that customers are thinking twice even before spending five rupees to buy a biscuit pack. That company, however, has been performing better than the market in the June quarter.
During an earnings call, Berry said, “We have grown 6% and the market is growing slower than that. And that’s a little bit of a worry, because even for a five-rupee product if the consumer is thinking twice before buying it, then there is some serious issue in the economy.”
Berry had pointed out that about a year ago the rural market was outpacing the urban market by almost one-and-a-half times, but now it is growing more slowly than the urban market, which has also slowed down.
The current downturn in Asia’s third-largest economy is denting sales of everything from cars to clothing, forcing many companies to offer discounts, curtail production and lay off workers.
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Many industrialists are, of late, increasingly feeling disenchanted with the government and some are even making public statements. Interestingly corporate India overwhelmingly backed Narendra Modi and the ruling Bharatiya Janata Party (BJP) during the recent general elections, believing their re-election would ensure continuity and stability.
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