The Fast Moving Consumer Goods (FMCG) sector, persistently a significant contributor to India’s economy, is expected to encounter a deceleration in its growth rate due to a multitude of factors ranging from the insufficiency of income growth, suppressed sentiments to liquidity crunches. The lowered consumer confidence, dwindling farm revenues, and stunted rural demand are identified to be major contributors to this slowdown.
The FMCG Landscape in India
Occupying the 4th largest segment within the Indian economic framework, the FMCG sector is segmented primarily into food and beverages which make up 19%, healthcare contributing to 31% and household & personal care making up the remainder 50% of the sector. Various factors such as an increase in awareness levels, easier accessibility and a shift in lifestyle patterns have triggered an upward trajectory for the industry over the years.
The urban demographic has been traditionally instrumental in significantly contributing to the overall revenue generation by the FMCG sector. However, a recent trend that emerges shows the rural FMCG market outpacing its urban counterpart in terms of growth rate.
Government Initiatives Benefiting the FMCG Sector
The Indian government has been proactive in propelling growth in the FMCG sector with several initiatives. The approval of 100% Foreign Direct Investment (FDI) in cash and carry segment along with single-brand retail and 51% FDI in multi-brand retail stand testament to this. Additionally, the FDI allowance of 100% has also been extended to the food processing segment.
These initiatives are anticipated to stimulate employment growth, strengthen supply chains, enhance the visibility of FMCG brands in organized retail markets. This elevated visibility will likely result in increased consumer spending thereby prompting more product launches within the sector.
Positive Impact of GST on FMCG
The introduction of the Goods and Services Tax (GST) has proven to be advantageous for the FMCG industry. Under GST, FMCG products like soap, toothpaste, and hair oil now fall under an 18% tax bracket, comparatively lower than the previous 23-24% rate.
Key Facts about the FMCG Sector
| Fact | Details |
|---|---|
| Rank in Indian Economy | 4th Largest Sector |
| Sector Segmentation | Food & Beverages – 19%, Healthcare – 31%, Household & Personal Care – 50% |
| Impact of Government Initiatives | 100% FDI allowed in various segments, enhancing employment, supply chains & visibility |
| Effect of GST | Lowered tax rates on essential products, encouraging increased consumer spending |
Anticipated Slowdown in FMCG Sector’s Growth
The predicted slowdown in the FMCG sector’s growth is primarily attritubted to factors like sluggish rural demand, low consumer confidence, and reduced farm incomes. A liquidity crunch and insufficient income growth further aggravate these conditions. Accordingly, stakeholders need to gear up to navigate this anticipated slowdown and devise strategies to maintain a sustainable growth rate.