The fast-moving consumer goods (FMCG) in India represents a major component of the Indian economy (4th largest industry), considering that the country has one of the largest consumer markets at a global level, of more than one billion persons. The largest contributor to the FMCG sector is represented by the urban population, which accounts for approximately 40% of the entire revenue.
Businessmen who are interested in opening a company in India in this sector should know that the largest sub-sector is represented by household and personal care products, which represent approximately50% of the total market. As such businesses will handle, amongst many others, food products, it will be necessary to comply with a set of food safety standards; our team of consultants in company formation in India can assist with advice on how to start a business in this sector.
Types of businesses in the FMCG sector in India
India is one of the largest markets in the world when it comes to fast-moving consumer goods thanks to its numerous population. This is why this sector can bring significant profits to those who decide to operate this type of business.
There are numerous types of operations that can be set up in this industry as the range of products that can be sold is quite large.
Even if it will operate at a local level, an Indian FMCG company must comply with the International Standard Industrial Classification (ISIC), which divides the goods into:
- over-the-counter pharmaceutical (OCP) products;
- tobacco and associated products;
- cosmetics and toiletries;
- electronics with a short lifespan.
Thanks to the variety of products, opening a business in the FMCG sector in India can imply the creation of a retail store, a shop, a mini or a supermarket, or even a logistics company used for distributing the products presented above.
Depending on the type of products sold, the licenses to obtain for this business are different. While this is an enterprise that can usually be set up as a large operation, however, small retailers can also operate in this sector at a smaller scale.
If you are interested in this subject, our company formation agents in India can provide the necessary information on how to start such a business.
You may rely on us for help with Indian payroll services, too. Our services are aimed at both small and large businesses that find it challenging or impossible to maintain an accurate picture of their organization from the perspective of employment. For information on the Employment Code, get in touch with us.
Food trends of the Indian FMCG industry
Alongside the household and personal care products, food products represent the other major component of the Indian FMCG industry and thus, investors starting a company in India should be aware of the current trends of the local consumer market, interested in the following types of goods:
|fortified goods and beverages||it accounts for 50% of the total food products sold through FMCG chains in India|
|dietary supplements||growth is driven by vitamin and mineral supplements, with an increasing interest for ayurvedic products|
|natural products||it represents approximately 17% of the entire food market and more and more companies have started using 100% natural, fresh and healthy ingredients|
|BFY (better for you) products||they are represented by snacks, soups, beverages, biscuits and other similar packaged goods|
What are the prospects for the Indian FMCG market?
By 2020, the Indian contribution to the global consumption related to the FMCG sector is expected to increase, reaching 5,8%. Although the most developed operations registered in the Indian FMCG sector are performed in the urban regions of the country, in the last years, the demand increased in the rural regions well.
The growth is correlated with the increase of the customers’ disposable income. Those interested in starting a company in India related to the FMCG sector should consider the following characteristics, which make the Indian FMCG market an appealing investment sector:
- in 2020, the Indian FMCG market is expected to have a total value of $1,1 trillion;
- this marks an important increase compared to the value registered in 2017 when it stood at $840 billion;
- at the level of 2018, the revenues of FMCG businesses in India accounted for $52,75 billion;
- by 2020, Indian FMCG companies will have a revenue of $103,7 billion;
- the FMCG activities in rural India increased at a fast pace, as 50% of all the rural consumer spending is related to FCMG products.
What are the advantages of investing in the Indian FMCG market?
Foreign businessmen are allowed to invest in the FMCG sector in India and they can also benefit from a set of governmental incentives. Businessmen interested in registering a company in India must know that FMCG businesses incorporated by foreigners can benefit from 100% foreign ownership for companies operating in the food processing industry; this regulation also applies to single-brand retail businesses; our team of consultants in company formation in India can offer more information regarding the available FMCG regulations related to foreign investments.
In the case of businesses operating as multi-brand retail, the company’s foreign ownership is set up at 51% from the company’s shares. The Indian government provides a set of attractive conditions for those who want to register a business in this sector, on matters regarding ownership (as presented above) or on the tax policies applicable to FMCG businesses. Some of the key aspects are presented below:
- the minimum capital requirement for investing in the FMCG industry in India for foreign investors is of $100 million;
- the FMCG field benefits from newer and more efficient rules of law (the local government enacted a new Consumer Protection Bill);
- various FCMG products are imposed with a lower tax threshold;
- this is applicable in the case of the goods and services tax, which is now applied at a lower rate for personal care products (soap, hair products, toothpaste);
- positive projections are also expected in the field of the online FMCG industry, which is expected to grow.
It is estimated that by 2020, a large share of the current FMCG businesses operating in India, of 40%, will carry their business activities in the online environment. In 2017, the value of the online FMCG market was $20 billion, while by 2020, the market is expected to double in value ($ 45 billion).
Suitable legal entities for creating an FMCG company in India
The Indian Company Code provides for several types of legal structures for the incorporation of a business, however, when it comes to an FMCG one, small entities are not recommended because of the large responsibility of the goods to be produced or marketed.
The limited liability company is one of the most suitable legal forms such a business can take, however, franchises are also among the preferred choices of those who want to bring an existing company to India. For foreign companies seeking to expand, the subsidiary can represent a good choice.
The incorporation of a limited liability company is not conditioned by any special requirement, however, once registered it must comply with industry-specific regulations.
If you want to open an FMCG company in India, you can rely on our local representatives who can help you register it with the Companies House.
Mandatory requirements for FMCG companies in India
GST or VAT registration is one of the mandatory requirements for opening an FMCG business in India. This occurs because such companies usually have high annual incomes and trade their goods abroad which requires a GST number.
Then, in terms of licenses, such a company will need different types of business permits depending on the goods it markets.
For distribution companies, having a truck fleet or ensuring other means of transportation implies meeting additional requirements.
The creation of an FMCG business requires completing complex procedures which is why a thorough verification of the legislation is mandatory. This is also where our company formation agents in India can help you.
Does an FMCG company need a license in India?
FMCG refers to the sale of a wide range of consumer products and businesses operating in this industry can provide products that belong to a single category (for example, selling only vegetables and fruits) or a combination of products, which is the case of most FMCG business – they can provide food products, personal care products, clothing items and other products usually found in supermarkets. However, all FMCG businesses will need to apply for specific types of licenses.
In the case of businesses providing food products, regardless if we refer to a small business or to a large one, it is compulsory to apply for a license, which is issued by the Food Safety and Standards Authority of India (FSSAI). The institution is in charge of implementing the regulations prescribed under the Food Safety and Standard Regulations.
The need to have a specific license is necessary for all businesses involved in the FCMG industry and not only for the final sellers. For example, the license is necessary for businesses operating as dairy units, companies processing vegetable oil, slaughterhouses, meat processing units, companies importing food products into India, catering businesses, and others.
In order to apply for the designated license, the applicants must complete a specific form and provide a list of documents – information on the premises in which the company will manufacture/sell the FMCG products, the detailed list of the machinery used for manufacturing, processing or selling such products, the company’s statutory documents, the list of directors; our team of specialists in company registration in India can offer full assistance on this procedure. We have also created a video on the process:
Regulations for FMCG products in India
One of the main concerns of an FMCG business operating in India refers to the regulations set out for the distribution of food products; our team of specialists in company formation in India can provide advice on the latest modifications imposed in this sense, but it is necessary to know that a draft on the Food and Safety Standards (Labeling and Display) Regulations 2018 addressed new procedures on the labeling of the salt content of a product, amongst numerous other new standards.
FMCG – the 4th largest industry in India
The fast-moving consumer goods sector is the 4th largest contributor to the Indian economy. The main segments of this sector are:
- foods and beverages which account for 19% of the total industry;
- healthcare products which represent 31% of the sector;
- household items and personal care products which account for 50% of the entire industry.
This sector also helped with the creation of more than 3 million jobs which adds even more value to India’s Gross Domestic Product. It is also one of the main engines of development in rural areas where various crops are cultivated.
It should also be noted that India is also one of the largest producers in the world in some of these segments and these are exported in all countries.
Exporting goods through an FMCG business in India
The FMCG sector is not only about selling goods on the local market, as these products can also be exported to other markets.
Asian states are India’s main trading partners as they import many FMCG produced here. It is quite simple to export foodstuff, beverages, and other FMCG items to neighboring states due to the mutual mechanisms set in place which facilitate trade.
Moreover, the high quality and the low prices of these goods make it very advantageous for Asian countries to import FMCG products from India. This requires the Indian company to obtain export licenses for its products.
If you want to set up an import-export business in the FMCG sector in India, you can rely on our local company incorporation representatives.
Businessmen are invited to contact our team of experts in company registration in India for more details related to the regulations addressed to FMCG companies; it is also important to know that all the food operations carried out here, including the import of FMCG goods, fall under the supervision of the FSSAI.