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Posted on Jan 28, 06:50PM | IBNS
With a big demand push from rural India, the fast moving consumer goods (FMCG) industry is expected to witness a robust growth of 18 per cent over the next 4-5 years and emerge as the sector which will claim the biggest component of the consumer expenditure by the end of the 12th Plan, an ASSOCHAM Eco Pulse study has indicated.
It said within the FMCG industry, the product categories which are expected to see attractive growth are the packaged foods category, toiletries, beverages, detergents, edible oil, and cosmetics.
In the food category, thanks to improving purchasing power, consumption pattern is shifting towards high value and protein products such as vegetables, fruits, milk, meat, fish and eggs. "In fact, rural India's evolving as the engine of growth for FMCG sector," the AEP study noted.
This structural shift in consumption pattern, termed popularly as 'the consumption diversification effect' has been mainly attributed to increase in rural incomes, easy access to supply, changed tastes and preferences and change in relative prices.
The latest quarterly results of the FMCG companies showed that despite prevalence of challenging business environment, the subsequent slowdown in economic growth, sustained elevated inflation levels and perceptions of hike in taxes, the sector has performed well and EBIT margins have improved.
"Firms have benefited from the higher price realization. FMCG firms are also tightly monitoring a programme of managing internal costs and driving productivity. As regards the labour factor, while there is no perceivable fall in the number of employees, there has been focused attempt to improve the productivity of the existing employees," the ASSOCHAM study said.
Another factor contributing to the demand in the sector is increasing awareness due to penetration of mass communication into rural areas. This led to rural tastes converging on urban lines, which in turn is resulting in huge surge in the demand for many personal use products in rural areas.
Universalisation of communication facilities that lead to these facilities made available, accessible and affordable in rural and far flung areas plus the renewed stress on rural infrastructure building since late 1990s coupled with the rising incomes of the rural people has created enormous demand for non-food consumer goods especially for FMCG and consumer durables.
FMCG or the Consumer Packaged Goods (CPG) are products that are sold quickly and are relatively lower priced and hence it becomes important for the firms to generate large sales quantities so that the cumulative profit on such products can be substantial.
Therefore, rural markets gain even more importance from the FMCG sector's perspective as there exists a huge untapped potential in these markets.
However, the FMCG sector confines to face hurdles like poor infrastructure, inadequate market connectivity and fragmented nature of the demand.
It said providing infrastructure for networking of the rural poor would enable them to get connected to the mainstream and organise and mobilize themselves in a more efficient manner. Lack of proper storage facilities increases the cost burden of the manufacturers.
There is an urgent need for improvement in rural accessibility scenario of the country. As rural access roads would help rural population reap the benefits and avail a wider gamut of goods and services, said the study.