Recovery in rural markets, improving employment conditions bodes well for near-term consumption: ITC

Mumbai: The Indian economy is expected to sustain its “high growth” trajectory in the current fiscal, driven by strong momentum in infrastructure investments and a pickup in private consumption, ITC Ltd said.

Growth will come on the back of a moderation in inflation, improvement in agricultural trade, a good rabi harvest and a normal monsoon, the hotels-to-packaged consumer goods company said in its annual report for FY24, released on Friday.

The company pointed to "green shoots” of recovery in the rural markets, improving employment conditions and a sustained momentum in manufacturing and services that it said augur well for consumption demand in the near term.

It said a favourable demographic profile, increasing affluence, rapid urbanisation and accelerated digital adoption represent some of the key structural drivers of economic growth. The government’s efforts to build physical and digital public infrastructure, enhance competitiveness of the manufacturing sector, indirect and direct taxation and financial sector reforms and measures to promote ease of doing business are expected to power the economy.

“While stepped-up capital expenditure outlay and focus on infrastructure are expected to drive growth in domestic manufacturing, focus on agri-related schemes are expected to boost farmers’ welfare and rural consumption demand, spurring a virtuous investment employment-consumption cycle," ITC said.

Consumption weakness

India has remained a relatively bright spot amid the global slowdown, it added. However, growth was primarily driven by investments led by the government's infrastructure push and household investments in real estate. Private consumption grew 3%—its slowest pace in two decades. This impacted growth across sectors, the company said.

The weakness in consumption was reflected in the muted volume growth of the fast-moving consumer goods (FMCG) sector, while industry and the services sectors grew by 9% and 7.5%, respectively. Growth in agriculture slowed to 0.7%, with adverse weather events impacting harvests.

ITC, which has interests in hotels, tobacco, FMCG and the agri sectors, reported standalone gross revenue of ₹69,446 crore in FY24, little changed from the previous year. Profit after tax grew 8.9% to ₹20,421.97 crore. The company’s shares have declined over 5% in the past year.

The economy will require "structural support” in sectors with large economic multiplier impact. 

The company also pointed to curbs on commodity trading that led to a decline in its agriculture exports. India banned wheat exports in May 2022 and exports of non-basmati rice in July 2023. Last fiscal, the company’s agri-segment revenue fell 13% to ₹15,791.83 crore. 

The company said enhancing agricultural productivity and value addition to international standards, while simultaneously improving market linkages, remain critical to improve the sector's competitiveness and drive a significant increase in farmers’ incomes. 

Additionally, ITC said the farm sector faces threats arising out of climate change. To be sure, 65% of the country’s population (2021 data) lives in the rural areas and 47% of the population is dependent on agriculture for livelihood.

An exponential increase in crop production and productivity, backed by climate smart agriculture, will be critical to meet the growing needs of an increasing population as also in mitigating potential risks, it said. 

“The Government’s focus on promoting Farmer Producer Organisations (FPOs) holds immense potential to catalyse agricultural transformation by leveraging economies of scale, enabling sustainable agriculture, supporting market-led production and creating larger market access,” ITC said.

Government interventions encouraging private and public investment in post-harvest activities including aggregation, modern storage, efficient supply chain, primary and secondary processing, marketing and branding are steps that will unlock the full potential of the agri sector, it added.