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Urban areas account for major chunk of total sales in the FMCG

sector
Accounting for a revenue share of around 60 per cent, urban segment is the
largest contributor to the overall revenue generated by the FMCG sector in India and
recorded a market size of around US$ 29.4 billion in 2016.
Semi-urban and rural segments are growing at a rapid pace; and accounted
for a revenue share of 40 per cent in the overall revenues recorded by FMCG sector
in India.
In the last few years, the FMCG market has grown at a faster pace in rural
India compared with urban India.

SNAPSHOT
Last Updated: March, 2017
Introduction
India's demographic profile predominantly consists of young population which is
increasingly turning urban. From a foreign investors point of view, it is an attractive
proposition with several long term opportunities. The Government of India too has
focussed on urban development in the country with specific programs such as smart
cities and many more. A large and growing middle class, prominent in such urban
centres, is not only increasingly consuming higher end goods and services but also
redefining the luxury market.
As per a McKinsey Global Institute (MGI) report, India's urban population is expected
to touch 590 million in 2030, from 340 million in 2008. This increase in growth is
expected to lead to several positive consequences such as abundant employment
opportunities and creation of new markets due to untapped demands of an
increasingly urban population.
Urban expansion is also anticipated to take place at a rapid rate. For instance, in the
period 1971-2008, the country's urban population increased by 230 million; the
addition of the next 250 million will likely take place in half that time.
Market Size
Indias urban population would increase to 38 per cent by 2026, compared to in the
country, which is 28 per cent in 2001 as per Census 2001. The growth in urban
population is estimated to make up for over two-thirds (67 per cent) of total
population increase by 2026. Out of the total population increase of 371 million
during 2001-2026 in India, the increase in urban population is expected to be 249
million. By 2030, cities will generate 70 per cent of net new jobs creation, more than
70 per cent of the country's Gross Domestic Product (GDP), and drive a fourfold
increase of per capita income across India, as per research by McKinsey &
Company.
Investments/Developments
Companies and a new generation of entrepreneurs are aiming to tap into unmet
needs of urban population. The emergence and rapid growth of app-based cab
service companies such as Uber and Ola are examples in the transportation sector.
Similarly, several internet and mobile based services from grocery deliveries to
finding doctors are all trying hard to secure a foothold in the high potential urban
market. Apart from basic services, several niche players with designer products and
premium offerings are also trying hard to establish themselves in the urban
consumer market. The growing customer base for luxury products coupled with the
awareness of international labels and discounts are driving the business of premium
products online.

Amway, Indias largest company in the Rs 7,500 crore (US$ 1.12


billion) direct-selling market, plans to invest Rs 400 crore (US$ 60
million) over the next five years to expand its product portfolio and
open 50 express stores in top 20 cities of India, in addition to
strengthening its e-commerce website.

The Government of Japan is very much interested in urban


development initiatives of the Government of India and has decided
to be associated with development of cities like Chennai,
Ahmedabad and Varanasi as smart cities in the country.

An urban management program has been organised by Temasek


Foundation (TF), Singapore Cooperation Enterprise (SCE) and
National Institution for Transforming India Aayog (NITI Aayog) in
order to get assistance from Singapore to improve urbanisation
process in India.

Bhubaneswar Smart City Limited, the special purpose vehicle (SPV)


for Bhubaneswar smart city with an authorised capital of Rs 500
crore (US$ 74.56 million) has declared commencement of business
from April 01, 2016.
The Asian Development Bank (ADB) and Government of India signed
a loan agreement of US$ 80 million, which is the third tranche of a
US$ 200 million financing facility under the North Eastern Region
Capital Cities Development Investment Program, and will be
invested for improving water supply, solid waste management and
sanitation in the cities of Agartala and Aizwal, the capital cities of
Tripura and Mizoram respectively.

Amazon India has launched its Crafted in India online store and
successfully expanded its designer wear store in India as part of its
strategy to customise offering for individuals.

US apparel retailer GAP has launched its first store in India with its
Indian franchisee Arvind Lifestyle Brands. It is targeting Rs 1,000
crore (US$ 148.28 million) revenue from the brand in 5-6 years as it
readies to debut in the country.

US-based fitness-tracking device maker Fitbit Inc. expects India to be


among its top five markets in the next one to two years led by
strong demand for health monitoring devices in the country.

Worlds leading sports car maker, Ferrari SpA, will open two new
dealerships in Mumbai and Delhi and introduce its California T
model for US$ 512,500. This marks supercar makers return to
India.

Custo Barcelona, the Spanish apparel brand of CustoDalmau, has


entered India. The brand has started its operations in India with two
stores, in Delhi and Mumbai, and will subsequently expand over a
period. Its sale will be limited to exclusive outlets, and there will be
no multi-brand retailing.
Luxury British brand Triumph Motorcycles has globally recorded its
highest sales figures in 30 years reaching a volume of 54,432 units
with India contributing sale of 1,300 bikes in the first year of its
inception here. Paul Stroud, Director Sales & Marketing, Triumph
Motorcycles India said Growing markets like India and Brazil have
been extremely critical and gratifying at the same time and they
have contributed substantially to our overall figures.

Americas largest speciality retailer of childrens apparel and


accessories, The Childrens Place is staging an entry into the India
market with the opening of its first 2,500 sq. ft. store in Bengalurus
Orion Mall.

Government Initiatives
Prime Minister Mr Narendra Modi had launched three government flagship schemes
in June, 2015 aimed at changing the face of urban IndiaSmart Cities mission, Atal
Mission for Rejuvenation and Urban Transformation (AMRUT) and Housing for All
mission with an expected expenditure of around Rs 4 trillion (US$ 59.65 billion) over
the next few years. The government has completed stage one of the Smart Cities
Mission worth Rs 1 trillion (US$ 14.91 billion) by shortlisting 100 cities across India
for the plan. The Government of India plans to spend Rs 50,000 crore (US$ 7.46
billion) to develop 100 smart cities in the country, with each selected city to receive
assistance of Rs 100 crore (US$ 14.91 million) per year for five years.

In the Union Budget 2017-18, the Government of India has allotted


Rs 9000 crore (US$ 1.34 billion) for AMRUT scheme and Smart
Cities mission.

The Government of India has unveiled a new Urban Development


strategy for the next 20 years, aimed at development of rural and
urban areas, housing for all urban poor and ensuring gender equity
in the country among other objectives.

The Ministry of Housing and Urban Poverty Alleviation has


sanctioned the construction of 84,460 more affordable houses in
five states for urban poor under the Pradhan Mantri Awas Yojana
(Urban) scheme, bringing the tally to 1.09 million affordable houses
that had been approved during 2015 under the scheme.

The Ministry of Urban Development plans to introduce a new policy


framework for resource mobilisation through Value Capture
Financing (VCF), which would enable state and city governments to
raise funds by tapping a share of increase in value of land and other
properties, to finance ongoing urban infrastructure expansion.

The Government of India plans to introduce a new Green Urban


Transport Scheme with a central assistance of about Rs 25,000
crore (US$ 3.75 billion), aimed at boosting the growth of urban
transport along low carbon path for substantial reduction in
pollution, and providing a framework for funding urban mobility
projects at National, State and City level with minimum recourse to
budgetary support by encouraging innovative financing of projects.

Rajasthan and Madhya Pradesh have taken the lead in setting up


Special Purpose Vehicles (SPV) as per the Smart City Mission
Guidelines for the timely and efficient implementation of Smart City
Plans.

The Agence Franaise de Developpement (French Development


Agency) has signed Memorandum of Understanding (MOU) with
the Government of Union Territory of Chandigarh, Government of
Union Territory of Puducherry, and the Government of Maharashtra
to develop Chandigarh, Puducherry and Nagpur respectively as
smart cities, as part of Government of Indias initiative to develop
100 Smart Cities across India.

The Union Cabinet has given its approval for signing of a


Memorandum of Understanding (MOU) between the Ministry of
Urban Development and Bloomberg Philanthropies (BP) of New
York to support the development of Smart Cities. Under the
proposal, BP will become the Knowledge Partner to support the
development and execution of Cities Challenge under the Smart
Cities Mission.

Five states - Kerala, Madhya Pradesh, Gujarat, Odisha and Mizoram


have taken the lead to address the issue of water logging in
monsoon season with plans to invest Rs 242 crore (US$ 36.08
million) across 25 cities under Atal Mission for Rejuvenation and
Urban Transformation (AMRUT).

The total population of the proposed Smart Cities to receive benefits


from the project is about 120 million accounting for 35 per cent of
countrys total urban population as per the 2011 census.

Road Ahead
Growing income levels, a youthful demographic and increasing preference for
brands in urban areas are driving urban market growth. Already the urban markets
are witnessing steady growth in traditional goods and services such as fast moving
consumer goods. The country is also set to become a vital market for wearable
technology such as smart watches and fitness monitors, driven by consumer interest
in such gadgets and the growth of spending on consumer durables.
Exchange Rate Used: INR 1 = US$ 0.015 as on February 9, 2017
References: Media Reports, Press releases, TSMG report, MGI report, Press
Information Bureau (PIB), Union Budget 2017-18