Fast-moving consumer goods (FMCG) sector is India’s fourth largest sector with household and personal care accounting for 50 per cent of FMCG sales in India. Growing awareness, easier access and changing lifestyles have been the key growth drivers for the sector. The urban segment (accounts for a revenue share of around 55 per cent) is the largest contributor to the overall revenue generated by the FMCG sector in India. However, in the last few years, the FMCG market has grown at a faster pace in rural India compared to urban India. Semi-urban and rural segments are growing at a rapid pace and FMCG products account for 50 per cent of the total rural spending.
The retail market in India is estimated to reach US$ 1.1 trillion by 2020 from US$ 840 billion in 2017, with modern trade expected to grow at 20-25 per cent per annum, which is likely to boost revenue of FMCG companies. Revenue of FMCG sector reached Rs 3.4 lakh crore (US$ 52.75 billion) in FY18 and is estimated to reach US$ 103.7 billion in 2020. FMCG market is expected to grow at 9-10 per cent in 2020.
Rise in rural consumption will drive the FMCG market. It contributes around 36 per cent to the overall FMCG spending. FMCG urban segment witnessed growth rate of 8 per cent, whereas, rural segment grew at 5 per cent in the quarter ended September 2019.
The Government has allowed 100 per cent Foreign Direct Investment (FDI) in food processing and single-brand retail and 51 per cent in multi-brand retail. This would bolster employment, supply chain and high visibility for FMCG brands across organised retail markets thereby bolstering consumer spending and encouraging more product launches. The sector witnessed healthy FDI inflow of US$ 16.28 billion during April 2000-March 2020.
Some of the recent developments in the FMCG sector are as follows:
Some of the major initiatives taken by the Government to promote the FMCG sector in India are as follows:
Rural consumption has increased, led by a combination of increasing income and higher aspiration levels. There is an increased demand for branded products in rural India. The rural FMCG market in India is expected to grow to US$ 220 billion by 2025 from US$ 23.6 billion in FY18.
On the other hand, with the share of unorganised market in the FMCG sector falling, the organised sector growth is expected to rise with increased level of brand consciousness, augmented by the growth in modern retail.
Another major factor propelling the demand for food services in India is the growing youth population, primarily in urban regions. India has a large base of young consumers who form majority of the workforce, and due to time constraints, barely get time for cooking.
Online portals are expected to play a key role for companies trying to enter the hinterlands. Internet has contributed in a big way, facilitating a cheaper and more convenient mode to increase a company’s reach. It is estimated that 40 per cent of all FMCG consumption in India will be made online by 2020. The online FMCG market is forecast to reach US$ 45 billion in 2020 from US$ 20 billion in 2017.
It is estimated that India will gain US$ 15 billion a year by implementing GST. GST and demonetisation are expected to drive demand, both in the rural and urban areas, and economic growth in a structured manner in the long term and improved performance of companies within the sector.
Note: Conversion rate used in April 2020, Rs 1 = US$ 0.013123
References: Media Reports, Press Information Bureau (PIB), Union Budget 2019-20, Firstpost
Note: ^ - According to CRISIL report, @ - according to Nielsen
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.
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