Fast Moving Capital Goods Sector to record Double-Digit Growth in 2019

Last Updated at: Jun 04, 2020
Fast Moving Capital Goods Sector to record Double-Digit Growth in 2019
India’s industrial output, measured in the Index of Industrial Production (IIP), expanded 4.5 percent during February, compared to 0.2 percent recorded in the same period last year.


The fast moving consumer goods sector is one of the most crucial components in India’s economy in the present time. Well-known and trustworthy rating agencies such as Nielsen have forecasted that the FMCG sector will grow at a substantially faster rate when compared to the other sectors of the economy.

The Fast-moving consumer goods (FMCG) sector is the fourth largest sector in the Indian economy. Within this sector, Household and Personal Care manufacturing accounts for 50 percent of total FMCG sales in India. Growing awareness, easier access, and changing lifestyles have been the key growth drivers for the sector. Currently, estimated as a USD $900 billion industry, it is all set to become a USD $1.1 trillion industry by the end of 2020.

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A survey by market research firm Nielsen predicts that the FMCG industry is expected to grow between 11% and 12% in 2019, creating new avenues for industrial expansion and growth for existing businesses. This figure, although lower than the 13.8% growth in 2018, is still quite high, given the volatility in most global markets.

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Here are some of the economic dynamics that have pumped the FMCG sector:

Government initiatives steering FMCG growth

The government has allowed a 100 percent Foreign Direct Investment (FDI) in the FMCG sector. While we have seen the success of joint-ventures like Hindustan Unilever, this economic reform is likely to bring in technical, financial and market expertise. The Goods and Services Tax (GST) is also beneficial for the FMCG industry as many of the FMCG products such as soap, toothpaste, and hair oil now come under 18 percent tax bracket, as against the previous 23-24 percent rate. Moreover, setting up of Mega Food Parks by the government with top-notch facilities have also contributed to growth in this consumer-centric segment.

Large-scale investment plans

The commitments of large scale investments by major players like Patanjali and Dabur have contributed to the shaping of the belief that the sector will attract more products, innovation and ultimately consumer spending.

Fiscal reforms increasing spending capacity

The tax relief measures presented at the Interim Budget 2019 such as the exemption on tax payment till 5 lakh rupees, advantages in house-property taxation, TDS limit for savings being increased etc – are bound to aid consumption across all consumer categories, as consumer will be left with extra money to expend. Studies have shown that increased disposable income results in growth in home and personal care sales, food and luxuries, thereby providing an impetus to the FMCG and services sectors.

The Interim Budget has been centered on the consumer, consumption, and measures that would rekindle the investment cycle.

Challenges to watch out for

Crude oil prices and exchange rates – As the turbulence in oil prices is furthered, crude prices in global markets and exchange rate fluctuations can heavily impact the FMCG industry, where most segments depend on imports and oil products. Trade barriers, sanctions, and quotas with countries can also affect a portion of sales.

Rainfall and geographical factors – Since the food industry and many household products derive their base from primary sources, a deficit in rainfall could mean crop failure and hence, less availability of raw inputs could shoot up prices and reduce the demand. All of this, set against a background of intense competition with countries like China can ensue several economic setbacks.

While 2017-18 recorded a high growth due to increased focus of the government on rural infrastructure improvement and the benefits of reduced prices (due to the introduction of the GST) being passed on to the consumers, the year 2019 also looks promising with electoral buzz, substantial tax advantages and the manifestations of integrating rural economy contributing to India’s growth story.

The potential for growth in FMCG sector is beyond doubt. However, this industry faces numerous challenges and obstacles. The government must make necessary changes to the overall scheme of things as far regulating the FMCG sector is concerned. Improving the ease of doing business is another significant responsibility of the Central as well as the State Government.

Avani Mishra is a graduate in law from the National Law Institute University, Bhopal. She qualified the Company Secretary course with an All India Rank 1 and is a recipient of the President’s Gold Medal for her academic distinctions. She also holds a B.Com degree with a specialization in Corporate Affairs and Administration.