Despite the economic slowdown, India’s fast moving consumer goods (FMCG) sector has grown consistently during the past three to four years, reaching a size of USD 25 billion (Rs 120,000 crore) at retail sales in 2008. The industry is poised to grow 10-12 per cent yearly for the next 10 years to reach USD 43 billion (Rs 206,000 crore) by 2013 and USD 74 billion (Rs 355,000 crore) by 2018.
Implementation of the proposed Goods and Services Tax (GST) and opening of Foreign Direct Investment (FDI) are expected to fuel growth further and raise the industry’s size to USD 47 billion (Rs 225,000 crore) by 2013 and USD 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, FMCG companies and retailers to put their act together. It suggests 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. 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 structure.
FMCG industry category breakup:
• Household care: 10 pc
• Tobacco: 15 pc
• Personal care: 20 pc
• Lighting: 2 pc
• Food & beverage: 53 pc
The study also urges the government to enforce Trade Mark and Copyright Laws to drastically reduce counterfeits, and protect the rights of 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 the government’s tax collections significantly.
Modernisation of labour laws, the study says, will enable Indian manufacturers to improve efficiency, serve consumers better and also raise exports from India.
The study simultaneously calls on traditional retailers to invest in better customer service, product display and store ambience and invest in infrastructure, especially for products that require a controlled temperature environment. Its advice to modern retailers is to work with FMCG brands to improve fill rates, capture consumer and shopper needs better, and explore co-branding and co-promotion opportunities.
The report also highlights the sector’s contribution to the socio-economic front. With about eight million kirana stores selling FMCG products, it supports the livelihood of 13 million people. Another 25 million people are employed as wholesalers, distributors, stockists, etc. Also, USD 2 billion (Rs 9,600 crore) 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 USD 2 billion (Rs 9,600 crore). About 10 per cent of FMCG production is outsourced to contract manufacturing units, with ancillary industry contribution at about USD 1.5 billion (Rs 7,200 crore).
The FMCG sector is also one of the major contributors to the exchequer with USD 6.5 billion (Rs 31,000 crore) paid through direct and indirect taxes.
Source: Business Standard