The sector is a core component of the Indian economy

There is a perception in this country that the PMCG sector is a producer of luxury goods targeted at the elite and is not significant in terms of size, employment and economic relevance. In reality, the sector:

Meets the everyday needs of the masses

By their very definition, products in the PMCG sector are for mass consumption, and are used frequently and directly by the end-consumer. These products include packaged food such as infant foods, iodised salt, edible oils and vanaspati, as well as personal and household care items like contraceptives, insecticides and tooth powder. Interestingly, the lower and lower middle-income groups account for over 60 per cent of the sector’s sales, while the rural market accounts for 56 per cent of total PMCG demand.

Is a key component of India’s GDP

The PMCG sector is one of the largest industrial sectors in the country, with domestic consumption of Rs 59,085 crore in 1998. It is also a significant provider of direct and indirect employment. By 1994, it was already responsible for 5 per cent of all factory employment, while its downstream activities generated jobs for another 3.5 million people, most of them in villages.

Is a critical contributor to the exchequer, and a master of value creation and capital utilisation

The PMCG sector is a large contributor to both Union and State taxes, and efficiently uses scarce capital to add value to goods and generate revenues for the exchequer. Indeed, its market capitalisation is enormous (Rs 84,601 crore) and second only to the IT sector (Rs 2,01,375 crore). The PMCG sector also has a high dependency on agriculture, with 71 per cent of its sales coming from agro-based products. This is higher than most large industries.

Growth of the sector will benefit all stakeholders

The PMCG sector has huge growth potential. In fact, if India were to achieve the 1998 per capita value consumption level of USA, the sector would grow more than 20-fold. By realising its full growth potential, the sector can fundamentally impact the core components of the Indian economy. For instance:

Growth will transform agriculture

Over the next few decades, food production by PMCG companies will rise from the existing 11 per cent to 70 per cent. This run by PMCG companies, which can increase yields and farming incomes by as much as 200 per cent.

Growth will also vastly increase employment

Being a large provider of both direct and indirect employment, the growth of this sector will see a huge jump in jobs. In fact, the employment elasticity of the PMCG sector is much higher than industries such as steel or petrochemicals.

It will drive exports and contribute more to the exchequer

India has already become a significant export-sourcing hub for PMCG products such as Pears and Vicks Vaporub. However, non-food products -- when compared to a sector like pharmaceuticals -- still have a significant export growth potential. Further, as sales grow, contribution to the exchequer is also likely to grow.

Technology will be dispersed across the value chain

The sector already disperses technology through innovation in manufacturing, which touches millions of farmers, innovation in distribution that affects retailers, and product innovation which impacts millions of consumers. As the sector grows, it will further leverage technology across the value chain. For instance, it will leverage packaging technology to reduce the threat of adulteration and prevent spoilage, or develop production processes that are both hygienic and high yielding. In other words, it will help to improve Indian health and hygiene standards inexpensively.

The sector will also be a key driver of national connectivity

Traditionally, the PMCG sector has been the biggest spender on national media. Going forward, there is further scope for the sector to drive IT penetration into small towns and villages. Indeed, the sector can claim equal partner status with the government and the IT sector through joint investments in telecom infrastructure and advertising.

The government and industry should collaborate to expedite growth

The PMCG sector can grow by increasing penetration and consumption per head. The levers for this are increased availability, affordability, and acceptance of PMCG products. To enable these levers and thus drive growth, the government should collaborate with the industry to:

Innovate for acceptance

Many PMCG companies have developed successful India-specific products such as mosquito coils, detergent cakes, and toothpowder. However, there is a need for many more such products. The government could help the consumer by cracking down on spurious products, investing in the `Made in India’ brand, and ensuring cost-competitiveness against exports. Meanwhile, the PMCG sector needs to invest even more in developing products relevant to the Indian consumer.

Increase affordability

Growth in this sector has been largely driven by affordable products. The industry needs to work with the government to further improve this. The PMCG sector, for instance, could improve cost efficiencies by improving its supply chain while the government could help by granting `merit’ tax status at the central level to higher value-added products. Industry and the government would need to work together to allow investment and technology to flow in and lower costs.

Improve availability

With demand for its products rising in small towns and villages, the industry has been working to increase availability in these areas. However, a fragmented agricultural supply chain, a weak rural supply chain, and a complex legislative process hamper availability. Here, the government could help by simplifying regulations that facilitate the sourcing and transporting of agricultural products and allow companies easy access to new markets. It could also support national connectivity by setting up partnerships to link small towns and rural areas.