SECTOR: FMCG

1. INTRODUCTION
Fast-moving consumer goods (FMCG) sector is India’s fourth largest sector with
household and personal care accounting for 50 per cent of FMCG sales in India.
However, in the last few years, the FMCG market has grown at a faster pace in rural
India compared to urban India. Semi-urban and rural segments are growing at a rapid
pace and FMCG products account for 50 per cent of the total rural spending.
Some of the recent developments in the FMCG sector are as follows:

 In March 2020, Venture Catalysts made an investment in OM Bhakti, an organised brand in

the puja cotton-wicks market during its seed-funding round.

 In November 2019, ITC Ltd acquired 33.42 per cent stake in Delectable Technologies, which
is a vending machine start-up.

 Nestle plans to invest Rs 700 crore (US$ 100.16 million) to open a new plant in Sanand for
Maggi.

 ITC to invest Rs 700 crore (US$ 100 million) in food park in Madhya Pradesh.

 Patanjali will spend US$743.72 million in various food parks in Maharashtra, Madhya
Pradesh, Assam, Andhra Pradesh and Uttar Pradesh.

2. Government Initiatives

 The Government has drafted a new Consumer Protection Bill with special emphasis on
setting up an extensive mechanism to ensure simple, speedy, accessible, affordable and
timely delivery of justice to consumers.
 The Goods and Services Tax (GST) is beneficial for the FMCG industry as many of the
FMCG products such as soap, toothpaste and hair oil now come under the 18 per cent tax
bracket against the previous rate of 23-24 per cent. Also, GST on food products and hygiene
products have been reduced to 0-5 per cent and 12-18 per cent respectively.
 GST is expected to transform logistics in the FMCG sector into a modern and efficient model
as all major corporations are remodelling their operations into larger logistics and
warehousing.

3. Road Ahead

 Rural consumption has increased, led by a combination of increasing income and higher
aspiration levels. There is an increased demand for branded products in rural India. The rural
FMCG market in India is expected to grow to US$ 220 billion by 2025 from US$ 23.6 billion in
FY18.
 On the other hand, with the share of unorganised market in the FMCG sector falling, the
organised sector growth is expected to rise with increased level of brand consciousness,
augmented by the growth in modern retail.

 The online FMCG market is forecast to reach US$ 45 billion in 2020 from US$ 20 billion in
2017. It is estimated that India will gain US$ 15 billion a year by implementing GST. GST and
demonetisation are expected to drive demand, both in the rural and urban areas, and
economic growth in a structured manner in the long term and improved performance of
companies within the sector.
Growing awareness, easier access, and changing lifestyle are the key growth drivers for the
consumer market. The focus on agriculture, MSMEs, education, healthcare, infrastructure and tax
rebate under Union Budget 2019-20 was expected to directly impact the FMCG sector. Initiatives
undertaken to increase the disposable income in the hands of common man, especially from rural
areas, will be beneficial for the sector.

4. Overview as per the mission on FMCG Sector:-

Atma Nirbhar Bharat has been called by some as a re-packaged version of the Make in India
movement using new taglines such as 'Vocal for Local’. Other opposition members spoke about how
India had enacted policies and built companies since its creation to make India self-reliant - SAIL for
steel production, IITs for domestic engineers, AIIMS for medical science, DRDO for Defence
research, HAL for aviation, ISRO for space, CCL NTPC and GAIL in the area of energy; criticizing the
advertising tactics. Some have re-phrased it to "Fend for Yourself" Campaign. Also, the calls for India
to boycott Chinese products (and promote an Atma Nirbhar Bharat instead), are practically difficult in
the short term for India as India imports $75 billion worth of goods every year from China, to the
extent that parts of Indian industry are dependent on China. Following the Galwan Valley skirmish on
15 June 2020 in which 20 Indian soldiers died, Swedish Jagran Manch said that if the government
was serious about making India self-reliant, Chinese companies should not be given projects such as
the Delhi-Meerut RRTS.

5. Measures for Businesses (Including MSMEs)

5.1 Financial Highlights

5.1.1 Collateral free loans for businesses: 

All businesses (including MSMEs) will be provided with collateral free automatic loans of up to three
lakh crore rupees.  MSMEs can borrow up to 20% of their entire outstanding credit as on February 29,
2020 from banks and Non-Banking Financial Companies (NBFCs).  Borrowers with up to Rs 25 crore
outstanding and Rs 100 crore turnover will be eligible for such loans and can avail the scheme till
October 31, 2020.  Interest on the loan will be capped and 100% credit guarantee on principal and
interest will be given to banks and NBFCs.

5.1.2 Corpus for MSMEs: 

A fund of funds with a corpus of Rs 10,000 crore will be set up for MSMEs.  This will provide equity
funding for MSMEs with growth potential and viability.  Rs 50,000 crore is expected to be leveraged
through this fund structure.

This scheme aims to support to stress MSMEs which have Non-Performing Assets (NPAs).  Under
the scheme, promoters of MSMEs will be given debt from banks, which will be infused into the
MSMEs as equity.  The government will facilitate Rs 20,000 crore of subordinate debt to MSMEs.  For
this purpose, it will provide Rs 4,000 crore to the Credit Guarantee Fund Trust for Micro and Small
Enterprises, which will provide partial credit guarantee support to banks providing credit under the
scheme.

5.2 Atma Nirbhar Bharat Abhiyan: Challenges/ Impact of this Stimulus Package

5.2.1 Primary Sector: 

The measures (reforms to amend ECA, APMC, Contract framing, etc.) announced for the agricultural
and allied sectors are particularly transformative.
These reforms are steps towards the One Nation One Market objective and help India become the
food factory of the world.
These would finally help in achieving the goal of a self-sustainable rural economy.
Also, the MGNREGA infusion of Rs 40,000 crore may help in alleviating the distress of migrants when
they return to their villages.
4.2.2 Secondary Sector: 

Given the importance of MSMEs for Indian economy, the Rs 3 lakh crore collateral-free loan facility for
MSMEs under the package will help this finance-starved sector and thereby provide a kick start to the
dismal state of the economy.
Also, as the MSME sector is the second largest employment generating sector in India, this step will
help to sustain the labour intensive industries and thereby help in leveraging India’s comparative
advantage.
Additionally, limiting imports of weapons and increasing the limit of foreign direct investment in
Defence from 49% to 74% will give a much-needed boost to the production in the Ordnance Factory
Board, while reducing India’s huge Defence import bill.

4.2.3 Tertiary Sector: 

The government has adopted a balanced approach in addressing concerns across sectors. For
example: The newly launched PM e-Vidya programme for multi-mode access to digital online
education provides a uniform learning platform for the whole nation, which shall enable schools and
universities to stream courses online without further loss of teaching hours. Public expenditure on
health will be increased by investing in grass root health institutions and ramping up health and
wellness centers in rural and urban areas.
6. MICROECONOMIC TOOLS BENEFICIAL IN FMCG SECTOR FOR SELF-RELIANT INDIA
 Rising income and growing youth population have been key growth drivers of the
sector. Brand consciousness has also aided demand.
 India’s contribution to global consumption is expected to more than double to 5.8 per
cent by 2020.
 Rural India is witnessing increased demand for quality goods and services driven by
upgraded distribution channels of FMCG companies.
 Rural segment is growing at a rapid pace and accounted for a revenue share of 45
per cent in the overall revenues recorded by FMCG sector in India.
 FMCG products account for 50 per cent of total rural spending.
 Demand for quality goods and services is on an upward trajectory in rural areas on
the back of improved distribution channels of manufacturing and FMCG companies.
 Availability of products has become way easier as internet and different channels of
sales has made the accessibility of desired product to customers more convenient at
required time and place.
 Online grocery stores and online retail stores like Grofers, Flipkart, and Amazon are
making FMCG products more readily available.
 Rural consumption has increased, led by a combination of increase in income and
higher aspiration levels. There is an increased demand for branded products in rural
India.