thumb

5. Indian Market- An Overview

Exploring the Indian Market: Opportunities and Growth

India presents a vast market for expansion, with significant untapped potential across various segments. Notably, India’s population, which consists mainly of youth, along with its unique culture, rising income, and expenditure capacity, forms the core of the opportunities present in the market. As such, many domestic and foreign players are continuously trying to make inroads into the Indian market. This influx is apparent from the Foreign Direct Investment (FDI) inflow in recent years. India aims to achieve an annual FDI of approximately US$ 100 billion, up from the current average of over US$ 70 billion over the past five years ending March 2023. The majority of the FDI flow was from Singapore, the USA, and Mauritius, in descending order, accounting for more than 50% share.

While the market is vast, Fast Moving Consumer Goods (FMCG) form a majority of the market share, having high competition and innovation. The sector reached US$ 167 billion in 2023 and is projected to grow at a CAGR of 27.9% from 2021 to 2027. The revival post-COVID was led by rural India and growth in modern trends, with household and personal care products accounting for 50% of sales.

India’s food processing industry reached a market size of US$ 307.2 billion in 2022 and is expected to grow at a rate of 9.5% CAGR during 2023-2028, reaching US$ 547.3 billion by 2028. Further growth is expected to be fuelled by schemes launched by the Union government. Recently, a new PLI scheme was approved by the government for the food processing sector, with a budget of US$ 1.46 billion allocated. Incentives under the scheme will be disbursed for six years until 2026-27.

Tech-Driven Growth

India has seen skyrocketing growth in the number of internet users, from approximately 346 million in 2016 to over 936 million in January 2024, accounting for an internet penetration rate of 66.39%. This boost was primarily driven by the government’s Digital India initiative launched in 2015, the introduction of affordable and free internet (JIO), and the integration of major services through online portals. The government has further aimed to connect rural India with broadband internet and train over 500 million users in digital skills.

Further, the introduction of the Unified Payment Interface (UPI) along with other digital modes of payment across the country and the quick adoption of UPI, especially during and post-demonetization, added to the shift from a cash-driven economy to more modern and cashless modes. This growth is evident in the increasing number and value of digital transactions in India. From just 2,071 crore transactions with a total value of INR 1,962 lakh crores in 2017-18 to over 13,462 crore transactions with a total value of INR 3,355 lakh crores in 2022-23, increasing at an overwhelming CAGR of 45%, and is projected to reach US$ 1 trillion by 2026. These achievements have made India a global leader in digital transactions, surpassing even developed countries.

This high-tech-driven approach has been recognized even by the players present in the market, and as such, digital marketing has become an important source of promotion for brands across the bandwidth. While the global internet advertising market growth declined from 30.8% in 2021 to 8.1% in 2022, having a total market value of US$ 484 billion, India’s internet advertising market expanded by 35.3%, from US$ 3.3 billion in 2021 to US$ 4.4 billion in 2022, making it one of the fastest growing in the world. By 2027, India will be the fourth-largest TV advertising market in the world, trailing only the United States, Japan, and China. By 2027, mobile internet advertising will account for 73% of internet advertising income in India. The internet advertising market in India is predicted to develop at a CAGR of 12.3%, with total revenue reaching US$ 7.9 billion by 2027. India’s overall advertising market is worth $15bn-$16bn, with digital accounting for a little more than $9bn of that. The FMCG industry is the biggest contributor, with a 42% share of the total digital spend.

Keeping pace with technology, e-commerce has also picked up, and the introduction of quick commerce has further threatened the reliance placed solely on traditional channels. While about 82% of FMCG sales still happen via traditional retail channels, having 11.5 million offline stores and growing at a 4% compounded annual rate, the e-commerce market’s share of Tier-3 cities grew from 34.2% in 2021 to 41.5% in 2022. As a result, the Indian e-commerce market is anticipated to grow from US$ 83 billion in 2022 to US$ 185 billion in 2026. By 2030, it is expected to have an annual gross merchandise value of US$ 350 billion. India hit a GMV of US$ 60 billion in fiscal year 2023, marking a 22% increase from the previous year. Major segments such as D2C and B2B have experienced immense growth in recent years. India’s D2C market is expected to reach US$ 60 billion by FY27.

India’s Quick E-Commerce market is set for exponential growth, projected to reach US$ 19,932.5 million. This growth is driven by increasing internet and smartphone penetration, the convenience of quick delivery, and accelerated adoption during COVID-19, with diverse product categories and order value segments catering to evolving consumer preferences. The domination of metropolitan cities presents significant opportunities for retailers and key players to capitalize on the rapidly expanding market.

India’s Business-to-Business (B2B) online marketplace is projected to be a US$ 200 billion opportunity by 2030. The B2C e-commerce market is expected to grow steadily over the forecast period, recording a CAGR of 8.68% during 2023-27. According to a recent report by RedSeer, India’s e-B2B market is projected to reach a GMV of US$ 100 billion by 2030.

Legal Framework

The FMCG industry is regulated by generic laws such as company law, industrial laws, and labour codes, while the products manufactured are regulated under various statutes. Food products are regulated by the Food Safety and Standards Act; cosmetics, drugs, and ayurvedic products are covered under the Drugs and Cosmetic Act with applicable Indian Standards; other general products are covered under the Legal Metrology Act read with applicable Indian Standards and other regulations. Additionally, the market also needs to comply with the Consumer Protection Act along with the regulations and rules made thereunder, such as those on advertisements, claims, and e-commerce. As the e-commerce market grows, compliances such as the appointment of a grievance redressal officer/nodal officer are being adopted. Quick commerce presents a unique problem to labor codes and the traditional retail model, making it a legal hotpot.

Further, acts such as the Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954; Insecticides Act, 1968; and various control orders are applicable from product to product, making the whole scenario a complex web of intertwined laws, making it crucial for any business to understand the scenario.

We hope this article provides a brief insight into the Indian market for entrants exploring the country and helps make informed choices. An FMCG player having sufficient knowledge of the market and working in compliance with the law is beneficial to the market, entity, and consumers.

Sources:

Please note that the above article is a culmination of information from various places, and as such, footnoting of figures and facts is not being done. However, complete reference to the sources is provided hereinbelow:

  1. Sectoral Report- FMCG, Investment Trust of India. Available at: https://www.itisbl.com/cms/ResearchReport/Sector-Report-(FMCG)-MARCH-2024.pdf
  2. Explore the four key trends shaping the FMCG landscape in India, 23 November 2023. Available at: https://nielseniq.com/global/en/insights/analysis/2022/explore-the-four-key-trends-shaping-the-fmcg-landscape-in-india/#:~:text=Omnichannel%20embraces%20quick%20commerce%20In%20India%2C%20e-commerce%20makes,see%20restaurants%20and%20cafes%20selling%20more%20product%20online
  3. India gets the highest annual FDI inflow of USD 83.57 billion in FY21-22, Ministry of Commerce and Industry. Available at: https://pib.gov.in/PressReleasePage.aspx?PRID=1826946
  4. IBEF, Foreign Direct Investment (FDI). Available at: https://www.ibef.org/economy/foreign-direct-investment#:~:text=India%20aims%20to%20attract%20at%20least%20US%24%20100,enhance%20investment%20attractiveness%20and%20stimulate%20growth%20across%20sectors.
  5. IBEF, Indian FMCG Industry Analysis. Available at: https://www.ibef.org/industry/fmcg-presentation
  6. Internet usage in India- Statistics & Facts. Available at: https://www.statista.com/topics/2157/internet-usage-in-india/#topicOverview
  7. Internet Users in India: Statistics and Data (2024). Available on: https://www.grabon.in/indulge/statistics/internet-users-statistics/#:~:text=In%20January%202024%2C%20India%20had%20over%20936.16%20million,remained%20offline%20at%20the%20start%20of%20the%20year.
  8. IBEF, E-commerce Industry in India. Available at: https://www.ibef.org/industry/ecommerce#:~:text=According%20to%20Grant%20Thornton%2C%20e-commerce%20in%20India%20is,by%202026%20from%20US%24%2038.5%20billion%20in%202017.
  9. Digital Transactions in India, Ministry of Electronics & IT. Available at: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1897272
  10. Total digital payment transactions volume increases from 2,071 crore in FY 2017-18 to 13,462 crore in FY 2022-23 at a CAGR of 45 per cent: MoS Finance. Available at: https://pib.gov.in/PressReleasePage.aspx?PRID=1988370
  11. Total digital payment transactions volume increased from 2,071 crore in FY2017-18 to 13,462 crore in FY2022-23 at a CAGR of 45%, Ministry of Finance. Available at: https://pib.gov.in/PressReleasePage.aspx?PRID=1985240
  12. Digital media growth to take Indian ad market size to Rs. 1.2 lakh crore in 2024, Indian Economy News- June 2024. Available at: https://www.ibef.org/news/digital-media-growth-to-take-indian-ad-market-size-to-rs-1-2-lakh-crore-in-2024
  13. Indian digital ads surge in world’s fastest growing online economy, Financial Times, November 2023. Available at: https://www.ft.com/content/daf90c3c-bd4c-491a-9bf9-6f8c52114b4e
  14. Digital Advertising in India, IBEF BLOG, INDIA ADDA – Perspectives On India. Available at: https://www.ibef.org/blogs/digital-advertising-in-india