The Indian direct selling industry is set to touch Rs 7120 crore by 2012-13. By the end of 209-10, the size of the industry was Rs 4120 crore, growing at a rate of 24 per cent over the previous fiscal. The industry is poised to grow at the rate of 20 per cent per annum till 2012-13, according to a study by Ernst & Young.
With Tier-II cities and others gaining market share, the direct selling companies are increasing their presence geographically to cover rural areas so as to gain from this opportunity. Further, companies are looking to set up their manufacturing facilities for their products encouraged by tax benefits provided by the government, thereby moving away from importing products. However, these factors have led to an increased sensitivity to factors such as the applicability of Goods and Service Tax (GST). Companies have also resorted to advertising to gain publicity and set-up web based ordering systems to reach out to more consumers.
Robust growth in this market has been driven by demand side factors like changing lifestyles of Indians, increasing spends on consumer products purchases and changing perceptions of value of consumers who are looking for quality products and are willing to pay a premium. On the demand side, growth is also driven by capital investment by industry players, says the report.
Revenues from Tier-II cities and others reported a robust growth increasing from 14 per cent of the overall market in 2008-09 to 38 per cent of the market this year. However, the share of metros reduced from 57 per cent to 38 per cent in the same period. The contribution of Tier-I cities also rose from 24 per cent to 29 per cent of the total market in the same period.
South India remains the hub of the direct selling activity followed by west India. Maharashtra has emerged as the number one state for 33 per cent of member companies with West Bengal and the North Eastern states entering the top four states of 47 per cent of member companies.
Future growth in direct selling is expected to continue being driven by the emerging markets in Tier 1 and Tier 2 cities. With increasing income levels, these emerging markets provide a substantial base of households for direct selling companies to target and thereby drive future growth.
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The report points out that from an overall perspective, future growth prospects of the direct selling in India remain robust. On the demand side, an increase in consumption of consumer goods of the average Indian coupled with the rising awareness of health and wellness among Indian households is a key growth driver.
The value perception of customers is also changing with customers increasingly looking for quality products that add value and are willing to pay a premium for them.
Increasing capital investment on the supply side, with companies venturing into multiple product categories is also expected to drive growth.