By Aditya Kumar Gupta
The FMCG sector is the fourth largest industry in India contributing nearly 20% to the Gross Domestic Product. FMCG, or fast-moving customer goods, sector refers to three main categories of products: Personal care, housing, and food. This sector witnessed growth through leaps and bounds in its early years of development; however, in the last few years, its growth has flat-lined. This is mainly due to government policy and changes in the overall marketplace. Surprisingly, these changes have turned favourable for the sector starting from this year. The FMCG sector is predicted to undergo the highest level of growth in its history in India. It is expected to grow at higher single-digit and even lower-double digit levels in the October-December Quarter of FY2018. FMCG sector is set to grow at a compound annual growth rate of 20.36% up to the year 2020 and set to grow by as much as $100 billion.
Factors promoting the sector’s growth
India is a very diverse market, therefore when it comes to the growth and development of any industry, there are always a multitude of factors which play a role in this development. FMCG is no exception. There are a variety of factors which can potentially promote its growth.
Until recently, there was a massive gap between the rural and urban households, with the urban area having a greater competitive edge. Yet as witnessed over the last few years of government implementation of programmes for the upliftment of the rural population, specifically, doubling the farmer’s incomes has brought about a notable shift. According to recent reports, 50% of the demand for FMCG retail comes from the rural areas. Retailers have recognised this increased demand and made every effort possible to meet it. With the help of technological advancements and its vast reach, retailers have easily been able to this meet this huge part of the potential demand in the rural areas.
Contribution of e-commerce
The technological aspect has not only aided the rural sector, but the urban sector as well. There has been a noticeable shift in the demand for e-commerce due to its wider reach and greater consumer convenience. Hence, through apps and websites, consumers can easily purchase products online and have them delivered to their doorstep, often even with a cash-on-delivery option available. E-commerce vendors like Amazon have every possible product available on their websites, hence eliminating the need for physical visits to retail stores. The sales of retail outlets may have gone down, but the FMCG products have definitely been an audience to a different story.
Brand consciousness and the youth
Product diversification has an important role to play in this increased growth. Gone are the days when every consumer in the market bought the same product without any sense of exploration. In recent times, consumers have begun exploring all the options available to them and then choose the one that is best suited to their needs. Since there are a huge number of products available in the market, every producer manages to find a select group of customers who favour its products. With diversified needs, the brand consciousness among customers too has grown. Once customers recognise their favoured brands, there is an assured demand for these particular products in the market. Needs may have become diversified, yet customers still prefer a reputed brand in the market. This is true for both the rural and urban markets.
India is one of the fastest growing and youngest economies in the world. Hence, the per capita income has constantly risen, set to cross ₹1,00,000 soon. This increased income has gone a long way in boosting the demand in the market. Additionally, a majority of the population in India falls under the youth category. This category contributes the largest amount of sales to the FMCG sector; hence, being a rather young economy has definitely benefited the industrial sectors in India.
Goods and services tax
The FMCG sector has recently been subjected to the Good and Services Tax, or GST. The declaration of the GST has been a great boost for the FMCG sector. Any rate of taxation previously less than 18% has benefited from the implementation of GST, as a situation of surplus. As the FMCG sector involves a wide-scale movement of goods and services, it had to undergo high operational and logistics costs. Inter-state taxation and excise duty seemed to be another burden. However, with the implementation of GST, such indirect taxes have been abolished and replaced with a single unified tax code all over the country. Therefore, the movement of goods has become much easier reducing the need for maintaining large inventories. The logistics costs which were previously 2%-7% have now come down to a mere 1.5%. Therefore, the implementation of GST has been a huge benefit for the FMCG sector, although it may not have seemed so from the outset. However, the inside story fortunately reveals a very rosy picture.
Another favourable government policy has been the relaxation with respect to Foreign Direct Investment. After reforms, the food sector is allowed 100% FDI, with a special focus given to the online retail. Foreign investment brings the factor of international standards into the market, raising competitors’ productivity. Along with an increase in employment, FDI manages to benefit every party involved.
Patanjali and the future
One of the best FMCG players in the Indian market has been Patanjali. Set up in 2006, Patanjali has grown from sales of $68.62 million to $769.23 Million in 2016. It has expanded from its initial range of Ayurveda products to regular retail products. Patanjali has adapted well to the change in the market, which has led to its magnificent success.
The FMCG sector is one of the major industries in the Indian market. Such an industry flat-lining in growth is not a pretty sight for the economy. Favourable government policies and a conscious management have managed to bring FMCG back to one of the fastest growing sectors in the market. Such a huge sector plays a huge role in GDP and employment, indicating a positive sign for India’s future.
Featured Image Source: Flickr
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