With Indian Prime Minister Narendra Modi touching down in Sydney last week to talk trade, defence and business, what better time to take a deep dive into the Indian market. The fifth largest economy globally and the largest democracy in the world, India is also one of the fastest-growing economies globally. Connections between India and Australia have also been deepening in recent years, marked by Prime Minister Albanese’s visit to India earlier this year and the signing of the Australia-India Economic Cooperation and Trade Agreement in 2022.
These developments provide a solid foundation for Australian food and beverage exporters to expand their market footprint in the Indian market. But the market isn’t without its challenges – difficulties in logistics, distribution and pushing Western brands create barriers to access in the market. So, while India may not be the first market to explore when expanding your export horizons, it’s certainly one to keep in your mind for the future. So, let’s take a closer look at what you need to know about the Indian market!
The Fastest Growing Major Global Economy
Globally, we’ve already seen a shift in economic power from the West to the East, with no signs of a slowdown anytime soon. Whilst major Western economies like the UK and Germany are forecast to experience a less than 5% GDP growth rate in the coming year, India–like many other Southeast Asian economies–is significantly outpacing this growth. In 2023, the country’s economy is expected to grow by almost 6% in GDP terms and if this growth trajectory continues as anticipated, India will move up the ranks to potentially become the world’s third-largest economy in the next ten years.
That being said, when we break down this overall economic picture into smaller pieces, we get a very different perspective. Despite overall wealth rising, a significant disparity exists between consumer classes as over 40% of the wealth created in the last ten years had gone to just 1% of the population. Unemployment also remains at a high with over 7% of the Indian population currently unemployed. But as we look to the future, the outlook is increasingly positive. In the short term, rising consumer confidence is driving consumption growth. Looking more long-term, India’s close proximity to major emerging markets is seeing many commenters suggest it will become the next global power, which will certainly make it a market to watch.
A Newly Signed Trade Deal With Australia
In coming years, India is set to benefit from the desire amongst Western leaders to diversify their investments away from China and align themselves economically with nations that share similar values. We’ve already seen this happening with talks of trade deal negotiations with Canada, the EU and UK. And Australia is just another example of this. In late 2022, the Australia-India Economic Cooperation and Trade Agreement (ECTA) entered into force. The agreement is designed to support two-way trade between the two nations, benefitting Australian exporters by slashing tariffs on over 85% of goods–a figure which is set to rise to 90% by 2026.
A plethora of Australian producers are already seeing the benefits of this agreement come to fruition, including manufacturers of lamb, barley, oats and rock lobster who now benefit from tariff-free entry into India. Tariffs on many fruits and nuts such as almonds and oranges, as well as wine, have already been reduced by 50%, while phased elimination of tariffs will come into effect in coming years for other products such as breakfast cereals, seafood, and infant formula.
The Largest Democracy in the World With An Expanding Middle Class
It’s no secret that India is home to a huge consumer market–and they’re young, increasingly wealthy and have a high propensity to spend! In fact, just weeks ago, India’s population reached over 1.429 billion, surpassing the population of mainland China and making India the world’s largest country by population size. Perhaps one of the most important trends to note is India’s rapidly growing middle class. While India is still a relatively poor country, ranking 145th globally based on per capita income in 2021, the growth of the middle class is a positive sign–rising from 14% of the population in 2004 to 31% in 2021 and an anticipated 63% in 2047. In the short term, consumer spending is showing positive growth post-pandemic. However, Indian consumers are expected to continue prioritising the purchase of household goods and groceries, benefitting the grocery sector. Quality and value will remain important considerations for these purchases, emphasising the need for producers to communicate clear value propositions to justify their prices.
Rapid Globalisation Influencing Consumer Tastes
With the pace of economic and demographic growth happening in India right now, it’s no surprise that investment in the country is growing. Major companies have ramped up their investments in India in the past few years, with Western foodservice outlets like Pret A Manger opening their doors to Indian consumers in 2023. And the tastes of Indian consumers are also evolving, becoming more and more globalised and shifting away from traditional food flavours. We can see this when we look at online foodservice delivery trends, with third-party delivery company Swiggy seeing growing demand for Italian pasta and pizza, Mexican bowls and a variety of Asian dishes such as sushi, ramen and bibimbap.
Religious & Health Trends Spur Plant-Based Developments
With the majority of India adhering to the beliefs and practices of Hinduism, India houses the largest population of vegetarians globally. As of 2022, 24% of the country is vegetarian, while 9% is vegan and 7% pescetarian. This spurs high demand for plant-based animal protein alternatives. The rising prevalence of health, as well as sustainability trends, is also evidenced within the growing market for organic foods. As consumers become more health conscious and aware of the health implications of the foods they eat, this is causing a shift in diet patterns. Nowadays, Indian consumers are much more likely to switch out traditional products for healthier substitutes, such as sugar-free options. In fact, the health food market is expected to grow to over $30 billion by 2026 with a CAGR of 15% over the next five years! This will include growth in functional foods such as those based on Ayurvedic ingredients, as well as gut, weight and overall well-being products. Natural foods and beverages are also highly sought-after, especially amongst India’s urban population.
Convenience and Sustainability Trends Mirroring Other Asian Markets
The health trend is just one example of India’s consumer market partaking in broader Asian and global trends post-COVID-19. As we’ve seen across the Asian region, rapid urbanisation is prompting rising demand for more convenient foods, with the same trends evident in the Indian market. This is especially true among younger generations, who are much less likely to spend time cooking food for themselves. Consumers are also prioritising sustainability, demanding more transparency when it comes to ingredient origins and manufacturing processes, as well as the social commitments displayed by brands. We can see this by observing consumer willingness to spend, as almost 90% of Indians are willing to spend more on sustainable, eco-friendly and ethically-made products. However, the sustainability trend is also translating into a greater willingness to pay for locally sourced products, making it important for Australian exporters to communicate their sustainability credentials and country of origin benefits to compete with local brands.
Dairy, Bakery and Snacks As Categories to Watch
As India’s middle-class population grows, the food and beverage industry is evolving. Indian consumers are increasingly looking for products with greater nutritional value as well as premium, gourmet options to reflect their more sophisticated palettes. This has been reflected in rising demand for gourmet olives, honey and cereals. The dairy industry has also seen growth in recent years, benefitting categories including milk and ice-creams which are set to see annual growth rates above 7% towards 2027. Growth is also evident in the bakery market, which is India’s largest food processing segment and continues to grow by 8% annually as demand for products like cereals, biscuits and cereal/energy bars rises. Other categories to note include pasta, soups and dried foods, which will see growth rates above 9% annually in the coming five years, aligning with the demand for convenience. Moving our focus to the beverages sector, beer, cider and wine will be the fastest-growing alcoholic beverages, while soft drinks such as energy drinks, iced coffees, juices and flavoured waters will see even stronger performance.
Maintaining An Online Presence is Key
As we’ve seen, there are a variety of exciting new opportunities for Australian food and beverage exporters. But to get the most out of these opportunities, marketing is key! In India’s tech-savvy market especially, maintaining an online brand presence is paramount to product success. Online reviews and social media have a significant impact on consumer purchasing decisions. A digital presence isn’t just needed for promotion though. It’s also increasingly necessary for distribution. A combination of health concerns, convenience and tech-savviness is driving a significant shift towards e-commerce shopping with e-grocery being the fastest-growing category. Almost 70% of Indian consumers take an omnichannel approach to grocery shopping, while almost 20% solely shop online for their food needs. This trend isn’t just restricted to metro cities, however. In tier-2 and tier-3 cities, e-commerce is also taking off and demand is just as strong as in metro cities.
Logistical and Infrastructure Barriers Create Market Entry Challenges
For all its positives–a vast consumer market, stable economy and trade deals with Australia–the Indian market does come with significant challenges to entry, making it a tough market to crack. Included amongst these challenges is difficulty gaining product clearance, with high import tariffs, non-tariff barriers, taxes and penalties boosting export costs and making import prices inaccessible for the majority of consumers. From an infrastructure perspective, underdeveloped transportation infrastructure creates significant congestion, delays and costs for exporters, while making the distribution of chilled or frozen products quite risky. For this reason, when purchasing imported products, Indian retailers generally prefer shelf-stable goods.
Vast Geography and Demographic challenges
As aforementioned, India’s middle class is growing and represents almost one-third of the country’s population. However, it’s important to note that by Western standards, this figure is much closer to just 1.5-2% of the population. As such, in a population of over 1.4 billion, the market for premium products is estimated to be just a fraction of this size at 30 to 50 million people–the good news is that this is still a big number! The challenge is that the wealthiest consumers aren’t just living in one excluded area or city–they’re dispersed across India and have widely varied taste preferences from one area to the next. As such, one of the biggest hurdles is capturing this wealthy share of consumers across the country, especially given the fact that distributors in the market are regionally focused, rather than offering wide distribution to retailers throughout India.
The added challenge of regional-based distribution is that the supply chain is lengthy, with importers, distributors, various sub-distributors and retailers/e-commerce platforms adding a large number of middlemen. From a payments perspective, each player tends to be risk-averse, with each link within the supply chain only paying once they’ve been paid–as such, the payment risk therefore sits almost entirely with the exporter.
Slow Movement of Western Brands in Retail
The internationalisation in Indian food tastes is extending to the grocery sector, with imported foods–especially agricultural products–seeing a growth in demand. However, with imported products being priced significantly higher than local goods, overall demand–while growing–remains restricted, with the majority of Western brands currently not seeing fast sell-through rates in India, yet.
And that’s a wrap on the Indian market. The above trends and developments certainly paint a promising picture of the opportunities available to Australian food and beverage exporters in India–from the country’s stable and growing economy to the elimination of tariffs via the ECTA and a growing middle-class consumer base. In the food and beverage market specifically, the rising tide of globalisation and expanding incomes are seeing Indian consumers branch out in terms of food preferences. But as we’ve seen, key challenges persist, including logistical and distribution barriers as well as difficulties that a vast geography and varied consumer preferences based on regional demography bring. As such, while the time may not be quite right to enter the Indian market for a new exporter, experienced exporters may consider studying and/or entering the Indian market now with a view to achieving a return in the long term.
We hope you’ve found these insights on the Indian market helpful. As always, if you’ve got any questions or want to discuss export opportunities for your company, feel free to drop us a line at Export Connect – we’d love to hear from you.