– By Rajat Wahi
The overall Indian retail industry grew by 34 percent from US$890 billion in 2019 to US$1.2 trillion in 2023, making India the fifth-largest retail market globally. The industry’s growth in 2023 was propelled by distinct sectors within the industry. First, the food and grocery retail segment, including staples, beverages, snacks, and packaged food items, was valued at over US$660 billion, contributing 55 percent to the total retail sales in India. The apparel and footwear retail segment, covering clothing, footwear, and accessories, accounted for a 12 percent market share with a market size of US$144 billion. With 8 percent growth, the consumer electronics and appliances retail segment was valued at US$96 billion. The growth was spurred by rising disposable incomes and technological advancements in products such as smartphones, TVs, laptops, and home appliances. The modern trade segment, comprising hypermarkets, supermarkets, and convenience stores, secured a 7 percent of the market share, equating to US$84 billion. Last, traditional trade, including kirana stores and small independent retailers, carved out a substantial 18 percent market share or US$216 billion.
Meanwhile, growth in the FMCG sector was led by these segments:
- Food and beverage (significant contributors include processed foods, dairy products, bakery items, and soft drinks): About 57 percent share of the FMCG sector with a value of US$37 billion in 2023
- Household (includes cleaning products, detergents, air fresheners, and personal hygiene items): Nearly 17 percent market share worth over US$11 billion
- Grooming and beauty (includes cosmetics, toiletries, soaps, and hair care products): Close to 15 percent market share valued at US$10 billion
- Health (includes pharmaceuticals, over-the-counter medicines, and wellness products): About 11 percent share with a value of US$7 billion
Outlook for 2024: The main opportunities
In the upcoming 2024 budget, the government is expected to reduce GST rates and simplify the GST filing process. A simple GST filing process can reduce the burden on businesses, reducing the GST compliance costs for businesses to 4-5 percent of their turnover. To boost consumption and growth, the government is also expected to reduce GST rates for some sectors, particularly those affected by high inflation. In December 2023, inflation in the food and beverage sector was 7.23 percent.
In the infrastructure sector, urban infrastructure is expected to potentially exceed the 2023 investment levels. In FY 2023, India’s infrastructure investment stood at 5.7 percent of the GDP. Experts expect a continued focus on investment in infrastructure and a 15-20 percent increase in capital expenditure compared with the revised estimate of ₹5.5 lakh crore (US$73 billion) for 2023-24. This could put the 2024-25 allocation in the range of ₹6.38-6.60 lakh crore (US$85-88 billion). For roads and highways, the potential allocation is expected to exceed ₹2 lakh crore (US$27 billion) to cater to ongoing projects, such as Bharatmala Pariyojana and Sagarmala. To achieve its ambitious green energy targets, the government is expected to allocate ₹50,000 crore (US$7 billion) for renewable energy projects and grid modernisation.
In the upcoming budget, the government will likely increase investments in rural India to build roads, irrigation systems, warehouses, and cold storage facilities. At present, rural road access in India stands at 60 percent. Pradhan Mantri Kisan Samman Nidhi is one of the major schemes, with a current allocation (2023-24) of ₹60,000 crore. However, considering inflation and farmer demands, the government could increase the allocation to ₹65,000-70,000 crore. Meanwhile, the Pradhan Mantri Gram Sadak Yojana, which aims to connect villages with all-weather roads, had a budget allocation of ₹19,000 crore in 2023-24. To support momentum for the remaining road construction, the allocation might remain similar in 2024.
Under the Make in India project, the government aims to increase the share of manufacturing from ~17 percent currently to 25 percent of the GDP by 2025. To achieve this target, India seeks to raise merchandise exports from US$420 billion in 2022-23 to US$1 trillion by 2025. The government allocated US$30 billion for PLI schemes across 14 sectors in 2023-24. The expansion of current schemes and the announcement of new schemes could see this allocation rise by 20-30 percent, potentially reaching US$40-45 billion. Estimates suggest India needs to invest US$1.5 trillion annually in infrastructure over the next decade to support its manufacturing ambitions.
The upcoming budget’s impact on the retail and FMCG sectors will be a complex mosaic of these positive and negative forces. While the government’s focus on rural development, infrastructure, and domestic manufacturing could promote growth, inflationary pressures and external uncertainties could lead to challenges. To navigate this dynamic landscape, industry players will need to remain adaptable, embrace innovation, and cater to the evolving needs of consumers.
(Rajat Wahi is Partner, Consulting at Deloitte India.)
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