Rural Markets Have More Potential than Urban Markets

The report released by the India brand equity foundation tells us that the consumer goods market is moving at a fast pace. FMCT goods are selling more in rural areas as compared to urban areas. According to this report, the market is going to increase by $100 billion by 2025. It was earlier believed that the market would deflate in rural areas. But contrary to that, it has increased. 40% of the Indian economy is dependent on these consumer goods. In this article, we will talk about FMCT goods in rural India and the improvement in urban demand.

What are FMCG goods in rural areas?

Fast-moving consumer goods are everyday items. These products have relatively low cost and short shelf-life (just like packaged goods and soft drinks). Such items are also perishable (e.g. meat, dairy products, baked goods). These products are sold instantly and have a huge turnover.

Different types of consumer goods

As discussed, fast-moving consumer goods are non-durable and have a short life. Due to their shelf life, they are consumed at a higher pace. FMCGs are categorised into different sections: 

• • Processed food items: cereals, noodles, pasta
  • Pre-packaged meals: including ready items like frozen foods
  • Beverage: juices, soft drinks, dairy-based drinks
  • Fresh food, veggies and fruits: frozen peas, nuts, raisins
  • Medicine: pain relief sprays or tablets that are eaten without a doctor’s prescription

• Cleaning items and cosmetics: dish wash bar, hair care products, toothpaste, glass cleaner

• Office supplies and stationery: pens, pencils, crayons, etc.

Why is there an increase in FMCT goods in rural India, more than in the expected urban markets?

The consumption rate of these FMCG goods in rural parts of India is constantly increasing in comparison to the improvement in urban demand. The consumption rate has doubled up to 9.7%. But why is there no improvement in urban demand?

Some of the major reasons why FMCT goods are selling much better in rural areas are: 

• Income

FMCT goods in rural India are increasing due to the increase in salary and earnings. Monsoon has helped people in rural areas to earn more income. Good monsoons mean more earnings for people living in rural places. 

• Government push

Indian authorities have implemented various schemes to help people earn more livelihood in rural areas. They are also helping farmers to gain more income. More earnings lead to more consumption. Schemes like the liberation of agricultural tax and other measures have helped them in earning more.

• Technological advancements

With better connectivity and technological advancements, rural areas are soon transforming into big towns. There is an increase in business potential in rural areas. Due to digitalization, there are more markets, and everyone is benefitting from such development. 

GST implementation in FMCG goods

FMCG is deemed to be the largest thriving sector. Fast-moving consumer goods are frequently cited as consumer packaged goods. All goods including consumables (other than groceries) come under the GST scheme. FMCG companies are liable for several taxes, including VAT, service tax, and excise tax, among other taxes.

But once the GST implementation to an item occurs, all taxes are covered in it. All taxes come under one single sheet in the form of GST. The existing tax rate for FMCG products comprising all of these taxes is up to 22–24%. There might be a GST implementation of 18–20% abruptly.

GST will impact the consumer items

The FMCG industry has welcomed the move of implementing the GST tax. GST tax is different for all the products and food items as well. Several commodities are placed under the 12% bracket. GST goods are considered costlier than the actual prices because of the added tax.

Basic food items like bread, butter, rice, and cereals are all part of the NIL bracket. Branded tofu and other similar items are available under the 5% bracket. Some products like cheese and ghee will become much more expensive as they are now under the 12% bracket. Gifting some raisins and nuts will also now become more expensive than buying dry fruits. 

FMCG companies are quite happy about the GST taxes that are now placed on different products. The industry is going to benefit because of the low logistics costs. This will also improve the competition rate in the market. The GST tax has drastically reduced the hassle of paying different taxes. It has also reduced the manufacturing and processing cost of items. Because of this tax, the manufacturing of certain things like automobiles will become cheaper.

Conclusion

Now, we have an understanding of the working of FMCG companies. These companies assume that rural areas have more consumption capacity as compared to urban areas. Also, we know what some of the FMCT goods in rural India are. Fast-moving consumer goods can also be seen as just consumer goods. These goods are sold very quickly and are used as daily essentials. FMCG goods have a slightly lower cost than luxury items. Household essentials, packaged items, and counter drugs are all considered consumer goods.