In the midst of ringing cash registers on the back of festive sale, an ASSOCHAM-TechSci Research report has projected more than doubling of India’s market for the fast moving consumer goods to USD 104 billion by 2020 from the present level of USD 49 billion, growing at an impressive compounded annual growth rate of 20.6 percent.
The optimism is based on steady economic growth, increasing share of organized retail, improving awareness about health and ethnic products being launched by the likes of Patanjali while a favorable demographic dividend is already given.
“It is certainly good news for giving a much-needed consumption boost to the economy,” said ASSOCHAM Secretary General D S Rawat.
Currently, India accounts for a share of just 0.68 percent of the Global FMCG market, this share is expected to increase significantly over the next five years mainly due to the macroeconomic factors such as improving demographics, rising disposable income, expansion of organized retail in tier II and III cities in India, changing consumer preferences etc, according to the study titled ‘Indian FMCG Market 2020’.
Major FMCG markets include USA, China, European Union, Japan etc. Globally, the FMCG sector is expected to grow at a CAGR of 4.4 percent, which when compared to India is a lot slower. Many foreign FMCG multinationals have established themselves in India.
Globally, the FMCG companies have now shifted their focus on E-commerce due to the increasing mobile internet penetration. Globally, the share of online sales of FMCG products accounted for around five percent in 2015, which is relatively higher than India where online FMCG sales accounted for a share of just one to two percent of the overall FMCG market in 2015.
The global economic growth has been decelerating as several large economies face decreasing economic growth, primarily China and the Euro-zone, as well as a few key emerging markets like Brazil and Russia. This offers an advantage to India which has a significantly better economic condition.
Indian FMCG sector had a market size of USD 43.08 billion in 2015. Well-established distribution networks, as well as intense competition between the organized and unorganized segments are the characteristics of this sector. The FMCG market in India is anticipated to grow at a significantly high CAGR during the forecast period and is expected to cross USD100 billion mark by 2020. FMCG in India has a strong distribution presence across the entire value chain.
The fast-moving consumer goods (FMCG) sector is an important contributor to India’s GDP growth. The sector includes food and dairy products, packaged food products, household products, drinks and others.
FMCG is the fourth largest sector in Indian economy and provides employment to around three million people accounting for approximately five percent of the total factory employment in India. The sector is characterized by strong presence of leading multinational companies, competition between organized and unorganized players, well established distribution network, and low operational cost.
The growth in the country’s FMCG sector is being fuelled by improving scenario in both demand as well as supply side. The major demand side drivers include growing affluence and appetite for consumption of the Indian consumer, growing youth population, rise in per capita expenditure, and increasing brand consciousness.
On the other hand, easier import of materials and technology, reduced barriers to entry of foreign players, and new product development, rapid real estate infrastructure development and improvement in supply chain efficiency are the major supply side drivers for the sector.
The growth of the FMCG sector, which primarily includes Food and beverages, personal care and household care has been driven in both the rural and urban segments. Rural consumption growth has outpaced urban consumption with the increase in percentage in monthly per capita expenditure in rural markets surpassing its urban counterparts over the past five years. Several government measures such as GST Bill, Food Security Bill and FDI in retail sector are expected to have a significant positive impact on the country’s FMCG sector in the coming years.