The demand for fast moving consumer goods known as FMCG such as toothpaste, talcum powder and instant coffee is set to soar in rural and semi-urban areas due to rising incomes, says a new industry study.
The current level of the FMCG market size in these areas is Rs 700 billion - around 30 percent of total. It will grow to 50 percent or worth Rs 1.23 trillion by 2012, says a "Future of FMCG Products in India" report released on Sunday by the Associated Chambers of Commerce and Industry of India (Assocham).
"The FMCG goods are likely to make a major dent in rural and semi-urban segments by 2012 with their demand growing at the rate of about 60 per cent annually," says the study.
"The demand for FCMG products will grow because of rising per capita income of rural and semi-urban folks."
The study expects rural and semi urban incomes to rise due to government focus of their industrialisation.
According to current estimates, while the per capita income of semi-urban folk is around Rs 14-15,000 per annum, that of rural people is measured at less than Rs 7,000 a year.
ASSOCHAM findings say that by 2012 the per capita income of rural folk will double and that of semi-urban people will more than double. This is expected to see a commensurate hike in their consumption patterns for FMCG products.
Around 70 percent of the total households in India reside in rural areas. The total number of rural households is expected to rise from 135 million in 2001-02 to 153 million in 2009-10 - the largest potential market in the world.
In rural and semi-urban areas the FMCG market penetration growth is now about two percent in general as against its total growth rate of about eight per cent, said ASSOCHAM president Anil K Agarwal.
"The Indian rural market with its vast size and demand base offers a huge opportunity that FMCG companies cannot afford to ignore," said Agarwal.
Although the rural and semi-urban demand of FMCG products will grow higher, it is expected to put a severe pressure on the margins of manufacturers of FMCG products because of cut-throat competition, says the analysis.
The major challenge would be to make the products more affordable.