Against a backdrop of uncertain global growth the IMF is forecasting that India’s GDP growth will outpace that of a slowing Chinese economy next year. What does this mean for the relative prospects for flexible packaging in the two countries?
Our view is that of all the five BRIC economies; Brazil, Russia, India, and China, it is India that offers by far the greatest potential for rapid long term growth. In the country’s US$5.7 billion flexible packaging market, foreign investors are increasingly in evidence, with Huhtamaki, Amcor and Constantia Flexibles making large investments via acquisition, green field projects and expansion of existing plants, to meet rapidly growing demand.
Recent research by PCI indicates that the Indian flexible packaging market is set to grow by over 17% per annum over the next few years compared with around 10% per annum for China. If achieved, this impressive rate of growth will see the country broadly matching Chinese flexible packaging demand in both per capita spend and in real terms by 2020.
India’s rapidly growing flexible packaging demand compared with China is underpinned by a number of factors:
- The Indian government is keen to provide a much more welcoming business environment for international investors than hitherto. The government’s ‘Make in India’ campaign is promoted with the aim of increasing manufacturing’s share of GDP from the current 15%, which is low for an emerging economy, to 25% by 2022. Foreign inward direct investment is clearly seen as an integral part of this strategy. Measures already introduced or planned include simplifying the tax system, simplifying investment procedures in industry, including food processing, and most crucially devoting much greater resources to improving infrastructure, especially roads, rail and energy, leading to reduced production and distribution costs.
- Approaching half of India’s population is under the age of 25 compared with only around one-third in China where the one-child family planning policy is resulting in an increasingly aging population. India’s much larger youthful population is increasingly receptive to buying and consuming pre-packaged products. Also, India’s fast growing and increasingly sophisticated middle class is driving demand for an ever growing range of higher value processed food products which utilise flexible packaging.
- Currently barely 5% of food in India reaches the consumer in pre-packaged form. As a result of poor distribution infrastructure nearly 40% of fresh food in India is estimated to perish before reaching the consumer, resulting in lost income for small farmers and higher prices for consumers. This presents huge opportunities for rapid flexible packaging growth.
Positive prospects for future growth rest on the government making good its strategy for reform. PCI’s view is that, despite formidable challenges, India will continue to deliver the most rapid growth for flexible packaging of all the major emerging economies over the next five years.
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