Sales of FMCG companies went up due to uptick in demand by panicked consumers, who over-stocked essential products and commodities in view of coronavirus threat, but this may be neutralised by a drop in levels in stock-in-trade' due to potential supply chain disruptions, said financial advisory firm KPMG in a report.
The coming two to three weeks would be a testing ground on how supply chains are able to keep pace with this temporary rise in consumption, said KPMG in its report titled 'Potential impact of COVID-19 on the Indian economy'.
Besides, the e-commerce sector will also face the challenges due to COVID-19 and may see a dip in growth, it added.
"We are in the midst of a global pandemic and with the guidance around social distancing to counter the COVID-19 threat, it is logical to expect consumers to over-stock on essential products and commodities. The existing uncertainty around how the pandemic shapes up may result in an uptick in spend by consumers in categories like rice, flour and lentils.
"This may give a slight fillip to sales for FMCG companies, but at the same time this may be neutralised by a drop in levels in stock-in-trade' due to potential supply chain disruptions," it said.
The report suggested that going forward "we can expect companies to explore newer distribution channels focused on a direct to consumer route'.
It has urged the government for easing manufacturing rules for essential commodities with faster clearance and adequate insurance coverage against extreme business disruptions.
Over the e-commerce sector, KPMG said that there would be increased pressure on the supply chain.
"Another challenge for e-commerce companies is that they will need to equip their employees with the appropriate resources to manage operations remotely with little or no disruption, it added.
The Indian retail sector was worth USD 950 billion in FY 2018-19 and was fifth largest in retail space globally.
In this, household and personal care contributed 50 per cent, while the healthcare segment was at 31 per cent and rest 19 per cent was from the food and beverages segment.
According to the report, raw material supplies could be a challenge due to disrupted supply chains. Moreover, a fall in imports could severely impact
select categories in retail and durables.
Moreover, production for specific categories, especially non-essentials would be a major challenge, with "demand unlikely to pick up immediately".
"Cash rotation would slow down for all categories, though food and grocery retail would be less impacted. Large retail and real estate companies can be expected to renegotiate rental contracts by invoking the force majeure clause. It is still unclear whether and how banks will step in to support companies in such a situation," it added.
Retail sector had contributed 10 per cent of GDP and 8 percent of employment in FY 2018-19, the report said.
India is presently going through an unprecedented complete lockdown of three weeks, ending on April 14, to prevent the spread of the coronavirus.
According to the latest report from the Union Health Ministry, the total number of COVID-19 cases has increased to 4,683 and the death toll is now 138.