High inflation that has impacted FMCG industry growth continues to remain a key challenge in the near term, with continued geopolitical tensions and extended global supply chain disruptions posing “key downside risks” for the year ahead, according to diversified entity ITC Ltd.
In its annual report for 2021-22, the company also highlighted the need for policy interventions that are “sharply focused on supporting sustainable livelihoods and fostering inclusive growth” as the economy faces the immediate challenges of muted consumption, persistently high inflationary headwinds and supply chain disruptions.
The operating environment in FY22 remained “extremely challenging” and was marked by heightened uncertainty and volatility due to the COVID pandemic and unprecedented inflationary headwinds; geopolitical tensions towards the end of the year exacerbated the situation.
The year also saw an unprecedented increase in prices of key inputs such as edible oils, packaging materials, soap noodles, fuel, logistics, etc. which exerted considerable pressure on margins.
The unprecedented increase in prices of key inputs was mitigated through focused cost management interventions across the value chain, premiumisation, product mix enrichment, judicious pricing actions and fiscal incentives, it added.
During the year, ITC said the FMCG industry witnessed moderation in growth mainly due to subdued demand conditions especially in rural markets, high inflation eating into household budgets and high base effect in certain categories such as staples and convenience foods.
Health and hygiene, and personal care products witnessed demand volatility in line with varying intensity of the pandemic while remaining significantly above pre-pandemic levels.
On the challenges ahead, the company said, “Inflation continues to remain a key monitorable for your Company in the near term.” The company continues to take proactive measures to counter the impact of such headwinds across all nodes of operations and deliver competitively superior performance leveraging its institutional strengths and harnessing advantages of scale, smart buying initiatives and world-class talent in a consumer-centric, agile and innovative manner, it said.
On the macroeconomic front, ITC said up until January 2022, near-term prospects for the Indian economy seemed extremely promising – with all sectors of the economy, including the contact-intensive service sector, having made a steady recovery.
“However, sustained inflationary headwinds and outbreak of the Russia-Ukraine conflict leading to extended global disruptions and spiralling of commodity prices have led to downward revisions to the growth forecast for 2022,” it said.