India’s consumption may surpass China; Substantial growth opportunity for FMCG sector

India’s growth has outperformed global peers. With a robust growth trajectory and right policy mix, there is a genuine chance that the country can maintain GDP growth rates of 8% over the long term. Based on IMF estimates India’s GDP per capita is expected to reach USD 3466 by 2027 marking 50% upside from current level. Moreover given 8% annual growth rate India may reach to USD 12 trillion by 2034 and per capita GDP would be close to USD 7000 vs USD 2612 India and USD 11600 China at present.

India became the world’s most populous country last year, surpassing China. India’s economy has a much higher marginal consumption rate than China’s and is expected to be the biggest contributor to global consumption growth over the next few years. From a macro point of view, if we take the average marginal propensity to consume (MPU) from 2000-2020 of 0.7x, which is significantly higher than in China, overall offers broader opportunity for fast moving consumer goods (FMCG) segment. Within FMCG, consumer health and spirits are growing at a CAGR of more than 20%, which is the fastest of all sub-categories. India accounts for 14% of global spirits market in terms of volume, but only 5% in terms of value. Urbanisation and premiumisation are expected to drive growth in the coming years.

The rapid growth of quick commerce and increasing penetration in India is likely to drive growth in hurried manner for the industry. Quick commerce companies hit the 2000 crore revenue mark in about two to three years, whereas Big Basket achieved it in five to six years, and Dmart took around nine to ten years to reach the same milestone. Zepto & Blinkit are projected to double their revenue in FY24, with Instamart by Swiggy also predicted to experience growth. Quick commerce players are expected to reach $5 billion in revenue within five years, surpassing traditional e-commerce in 1-2 years. The rapid expansion of quick commerce, driven by both high efficiency and strong consumer demand, along with increasing per capita income and consumption levels, points towards added bright spot for the industry. Furthermore, the anticipated entry of fashion into the quick commerce market is projected to result in substantial growth.

India’s economic and demographic landscape presents a unique opportunity for growth in this sector, driven by its structural advantages and positive macroeconomic trends. With a rapidly growing GDP, significant investments in infrastructure, widespread urbanization, and a focus on premiumization, India offers an attractive market place for branded players to have presence. Additionally, the country boasts one of the largest and youngest populations globally, further contributing to its potential for success.

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