Last Updated: March 26, 2020
Last Updated: January, 2020
Fast-moving consumer goods (FMCG) sector is the 4th largest sector in the Indian economy 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 with urban India. Semi-urban and rural segments are growing at a rapid pace and FMCG products account for 50 per cent of 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 per cent - 25 per cent per annum, which is likely to boost revenues of FMCG companies. Revenues of FMCG sector reached Rs 3.4 lakh crore (US$ 52.75 billion) in FY18 and are estimated to reach US$ 103.7 billion in 2020. The sector witnessed growth of 16.5 per cent in value terms between July-September 2018; supported by moderate inflation, increase in private consumption and rural income.@
The FMCG sector is expected to grow at 9-10 per cent in 2019.Rise in rural consumption to 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 quarter ended in 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 and supply chains, and also provide high visibility for FMCG brands in organised retail markets, bolstering consumer spending and encouraging more product launches. The sector witnessed healthy FDI inflows of US$ 15.36 billion, during April 2000 to June 2019.
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 incomes 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. In FY18, FMCG’s rural segment contributed an estimated 10 per cent of the total income and it is forecasted to contribute 15-16 per cent in FY 19. FMCG sector is forecasted to grow at 12-13 per cent between April–June 2019.
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, also 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 the country’s urban regions. India has a large base of young consumers who form the 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. The Internet has contributed in a big way, facilitating a cheaper and more convenient means to increase a company’s reach. It is estimated that 40 per cent of all FMCG consumption in India will be online by 2020. The online FMCG market is forecasted 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 the Goods and Services Tax. 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 improve performance of companies within the sector.
Note: Conversion rate used as on September 2019, Re 1 = US$ 0.014019
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.
Last Updated: March 26, 2020
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