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Army's CSD curbs spending on FMCG products - CNBC-TV18 -

The Indian Army has been cutting down on ordering FMCG products and concentrating on using up existing stock. For FMCG companies, this has been a big blow because with an estimated annual budget of Rs 12,000 crore, the military's canteen store department is one of the largest consumers of FMCG products. This freeze on spending by the CSD may continue for a while yet, reports Farah Bookwala of CNBC-TV18.


The Indian armed forces probably the largest in the world with over 4.5 million mouths to feed and for many FMCG companies, the biggest client. But, not for a while. The Canteen Store Department (CSD), which caters to all three branches of the armed forces, decided on a freeze on fresh orders in February and this hit the fourth quarter performance of many of these FMCG companies, with volumes falling 2-7%.


CSD accounts for 8% of GlaxosmithKline Consumer's total sales and its volumes have slipped by 2.5%. Jyothy Lab's subsidiary Henkel India says 20% of its sales come from CSD and its volumes have been dented by 5-7%.


And while sources had earlier said this was done to use up existing stock, and renegotiate terms of trade with suppliers, we're now given to understand that is due to possible budget cuts and the not-so-good news for these FMCG companies is that this freeze may not lift soon.


K Ullas Kamath, joint MD, Jyothy Labs, says that the market understanding that we get from the CSD or from defence is that there is a budget cut. Probably, it's part of the austerity measures of the government and they're going slow on placing the orders.


Forget the freeze on new orders; the payments for older shipments have also been delayed.


"Earlier the payment used to come in 45 days now it comes in 60 -65 days so were are seeing there is also a pressure on their side to release the payments for the deliveries they've accepted." said Kamath.


Sources say, while budgets for some categories have been frozen, budgets for others have been slashed by 10-15% where traditionally, on average, every category saw a 5-10% hike.


For example, the FY13 budget for liquor supplies has been capped at Rs 2,000 crore, the same as in FY12. So, suppliers are bracing for less volume this year and say that contrary to popular belief, they have no influence on CSD budgets.


Kamath further said that we'll not have any kind of power to influence CSD because it's a government organisation and they'll have their own processes, their own mechanisms. So, we only wait for their direction to supply goods.


They now hope that next year's budgets will see higher allocations and orders from CSD will bounce back.