In what could provide a major boost to India’s consumption story, rural households accounting for about 68% of the country’s population present an excellent opportunity for companies FMCG and retail segments, as demand outlook remains robust, according to a report. According to a report by Deloitte and FICCI, multi-national companies have lucrative opportunities in rural India on the back of a growing economy and favourable factors.
“Rural households contribute to approximately 50% of the GDP, 40% FMCG sales, 50% two-wheeler sales, 30% four-wheeler, and 45% telecom contribution,” the report said. Interestingly, while the overall retail market in India is expected to reach $1.2 trillion in the next 5-8 yrs, modern retail is expanding its footprint across India and is expected to reach 25% of total retail sales (from the current ~10%), notes the report. While the retail sector is set to grow, ecommerce is expected to double its share to 10-12% of total retail sales in the next 5-8 years.
A lot of factors has led to this strong growth in consumption in the rural areas. “With greater use of technology, especially in retail, consumers’ shopping journey is becoming more experiential. Brands are responding to this evolution, by making the consumers’ journey less transactional and are leveraging omni-channel ways to enable their purchases,” noted the report.
Notably, higher disposable incomes have also been a driving factor for this robust growth. With per capita income expected to increase 10.2% to Rs 2,66,500 by 2025, the discretionary spending is also expected to increase to 45% in 2025, from 35% presently. There has also been a massive rise in demand for white goods, and households in India have evolved from typically consisting of 4-5 major consumer appliances during 1990s to nearly 12-15 appliances today.
“Healthy growth of the Indian economy (real GDP growth rate of over 7 percent estimated for 2018) coupled with favourable demographic factors in the country are expected to drive growth in the retail, CPG (consumer packaged goods) and e-commerce industries,” Rajat Wahi, partner, Deloitte India, said.