Despite the economic slowdown, India‘s Fast Moving Consumer Goods (FMCG) sector has grown consistently during the last three to four years, reaching a size of $25 billion (Rs 120,000 crore) at retail sales in 2008. The industry is poised to grow at 10-12 per cent for the next 10 years to reach $43 billion (Rs 206,000 crore) by 2013 and $74 billion (Rs 355,000 crore) by 2018.
Moreover, the implementation of the proposed Goods and Services Tax (GST) and opening up of Foreign Direct Investment (FDI) are expected to fuel growth further to raise the industry’s size to $47 billion (Rs 225,000 crore) by 2013 and $95 billion (Rs 456,000 crore) by 2018, according to a new FICCI-Technopak report.
The report has made wide-ranging recommendations to iron out the rough patches in the industry’s growth trajectory, urging the government, the FMCG companies and the retailers to put their act together. It suggests that the government needs to rapidly implement GST to replace the multiple indirect taxes currently levied on FMCG products.
This would have several benefits including uniform, simplified and single point taxation and reduced prices to the end consumer. Consumption growth and improved tax compliance will result in an increase in tax collections.
The 30-35 per cent taxation levels in India are much higher when benchmarked internationally, argues the report. Also, the tax structure creates logistical delays because of its multi-level system at central and state levels, with each state itself having different tax structures.
The study also urges the government to enforce Trade Mark and Copyright Laws to drastically reduce counterfeits, and protect the rights of the consumers and FMCG companies.
Counterfeit products account for almost 5 per cent of the industry and pose serious challenges in its growth and also impact government’s tax collections significantly.
Modernisation of Labour Laws, the study points out, will enable Indian manufacturers to improve efficiencies, serve Indian consumers better and also grow exports from India.
The study simultaneously calls upon traditional retailers to invest in better customer service, product display and store ambience and invest in infrastructure, especially for products that require controlled temperature environment. Its advise to modern retailers is to work with FMCG brands to improve fill rates, better capture consumer and shopper needs, and explore co-branding and co-promotion opportunities.
The report also highlights the sector’s contribution on socio-economic front. With about 8 million kirana stores selling FMCG products, it supports livelihood of 13 million people. Another 25 million people are employed at wholesalers, distributors, stockists, etc.
Also, $2 billion (Rs 9,600 crores) of agricultural produce is purchased by the FMCG sector, processed and converted into value added products. And 40 per cent of media industry earnings from advertising come from the FMCG sector, a contribution of $2 billion (Rs 9,600 crores). About 10 per cent of FMCG production is outsourced to contract manufacturing units, with ancillary industry contribution at about $1.5 billion (Rs 7,200 crores).
The FMCG sector is also one of the major contributor to the exchequer with $6.5 billion (Rs 31,000 crores) paid through direct and indirect taxes.
