FMCG anticipates major reforms in Budget 2025 to overcome economic headwinds

As India prepares for the Union Budget 2025, the Fast-Moving Consumer Goods (FMCG) sector, a crucial engine driving the nation’s economy, is hoping for transformative measures to reignite its growth after a challenging year marked by high inflation. Facing subdued demand and heightened economic pressures, the sector is looking for strategic reforms that can stimulate consumer spending and foster renewed consumption, particularly in both urban and rural markets. With the post-pandemic recovery still underway and inflationary challenges lingering, industry experts are optimistic that the government will introduce targeted interventions to bolster this vital sector and drive sustainable economic growth across all regions.

Impact on FMCG Sector Growth

The FMCG sector has faced significant headwinds in recent months, driven by rising input costs, inflationary pressures, and slower consumption growth. Kantar’s FMCG Pulse report highlighted a slowdown in growth, dropping to 4.3% in the August-October 2024 quarter, compared to 6.4% in the same period the previous year. A surge in raw material prices, including key inputs like palm oil, coffee, cocoa, and wheat, has led to price hikes of 3%-5%. Many companies have also resorted to “shrinkflation”, reducing product sizes to maintain affordability, a tactic that could risk eroding consumer trust.

Experts are urging the government to introduce measures aimed at boosting disposable incomes, which could help stimulate demand, particularly among low- and middle-income households. With India’s GDP growth projection for FY25 revised to 6.4%, fiscal interventions to drive growth in the FMCG sector are more critical than ever.

GST and Taxation Policies

One of the most pressing demands from the FMCG industry is a revision of the Goods and Services Tax (GST) structure. Specifically, there is a call to reduce the GST rates on mass-consumption products, such as packaged foods and personal care items, from 18% to 12%. This move would not only make products more affordable but could also spur consumption, leading to an increase in tax revenue. According to Axis Securities, GST rationalization is a key step in revitalizing demand, both in urban and rural markets.

In addition to GST changes, there are expectations for the government to raise income tax exemptions. An increase in the basic exemption limit—from Rs 2.5 lakh to Rs 3.5 lakh under the old tax regime—could boost disposable income, especially for middle-class families. This, in turn, could drive higher spending on FMCG products, offering much-needed relief to the sector.

The FMCG sector is at a crucial juncture, with industry leaders urging the government to make specific adjustments in GST rates and taxation policies in the upcoming Union Budget. A reduction in GST rates on mass-consumption FMCG products is expected to result in an 8% increase in volume sales, contributing an additional 0.5% to GDP growth. Furthermore, simplifying the GST structure—especially for similar products with varying tax rates, such as popcorn—would reduce operational complexity and ease compliance.

Additionally, introducing targeted tax incentives to promote rural market development and innovation could help drive a 10% growth in rural FMCG sales, further boosting the industry’s overall performance.

Rural Market Development

Rural India remains a key growth engine for the FMCG sector, accounting for over 35% of annual sales. Over the past few years, rural demand has shown resilience, fueled by favorable monsoons and government initiatives like the Pradhan Mantri Awaas Yojana-Gramin (PMAY-G) and MGNREGS. Industry experts are optimistic that the Union Budget 2025 will place a stronger focus on rural development, with higher allocations for infrastructure, education, healthcare, and housing in rural areas.

Increased investments in rural infrastructure could significantly boost FMCG consumption in underserved regions, aligning with the government’s broader goal of doubling rural incomes by 2030. Strengthening rural economies is widely seen as crucial for unlocking the full potential of the FMCG market.

The proposed allocation of Rs 2.66 lakh crore for rural development, including initiatives such as the Pradhan Mantri Gram Sadak Yojana, could improve connectivity and ensure better access to goods and services in rural communities. Additional funding for MGNREGA, which has historically supported rural incomes, would amplify its impact. Experts are also hopeful for increased funding for direct benefit transfers, which could further boost disposable incomes in rural areas.

With food subsidies expected to rise by 5% to Rs 2.15 lakh crore, these combined measures could energize the FMCG sector, enhancing consumption and contributing to sustainable economic growth.

What Can We Expect?

The FMCG sector has high expectations from the Union Budget 2025. With inflationary pressures and slower consumption growth, industry experts are calling for reforms that address the core challenges affecting the sector:

• Higher Income Tax Exemptions: This would boost disposable incomes and stimulate demand in both urban and rural markets.
• GST Rationalization: A reduction in GST rates for mass-consumption FMCG products to make them more affordable and encourage consumption.
• Rural Development Measures: Increased government spending on rural infrastructure, job creation, and direct benefit transfers to strengthen rural purchasing power and boost FMCG sales.

If these measures are implemented, the Union Budget 2025 has the potential to transform the FMCG sector, sparking growth, expanding consumption, and ultimately contributing to India’s broader economic development.

FMCG Experts Share Pre-Budget Expectations

As India’s Union Budget for 2025 approaches, experts from the FMCG sector are eagerly anticipating measures that could further boost the industry’s growth, enhance rural consumption, drive innovation, and promote sustainability. Here are the key insights shared by various leaders in the FMCG space.

“This year’s budget, we anticipate, will focus on policies that promote job creation, further investments in rural infrastructure, and tax relief measures that will empower consumers to spend with confidence. With rural demand gaining momentum thanks to ongoing government efforts in infrastructure development, agriculture support, and job creation, we are optimistic that the upcoming budget will build on these strong foundations. Additionally, tackling inflation, especially in essentials like food, will be crucial to sustaining this momentum. By accelerating these initiatives, we can unlock the full potential of rural economies, driving demand and creating opportunities for businesses to thrive across India.”

Aasif Malbari, CFO, GCPL:

“The Budget is a great opportunity to create an inclusive and sustainable consumption growth story. Through reforms such as lowering oil import duties, rationalizing GST rates, generating rural employment, and incentivizing investments, the government can unleash the real power of the consumption economy. This would translate into an uplift in consumption and sustained economic growth.”

Sunil Agarwal, Co-Founder and Chairman, Joy Personal Care (RSH Global):

“We are optimistic about the Union Budget 2025-26 and expect transformative measures for the FMCG sector. With high inflation reducing the middle class's purchasing power, tax relief would help ease financial pressure and boost consumer spending. Lowering GST rates on essential FMCG products like personal care and packaged foods would provide relief and drive demand. The FMCG industry is poised for a recovery in urban demand while expecting higher sales growth in rural areas in 2025.”

Preetam Jena, CMO & Ecommerce Head, Fixderma India:

“As we look ahead to 2025, we anticipate continued growth in the Indian skincare market, driven by increasing awareness of skincare needs and innovations. With the market projected to reach $10.3 billion by 2025, we expect the government to consider policies supporting the skincare industry's expansion, particularly in Tier-2 and Tier-3 cities, where accessibility and affordability remain key concerns.”

Somdutta Singh, Founder & CEO, Assiduus:

“India’s FMCG sector is at a critical juncture, having achieved 6.6% value growth in the first quarter of 2024. However, the sector faced significant challenges in the second half, with sales volume growth slowing. I believe simplifying the GST framework is a crucial step. Current disparities, like varying rates on popcorn, create operational challenges. A uniform GST structure would enhance operational efficiency and ensure fairness. Additionally, boosting rural consumption is vital. Expanding MNREGA and direct cash transfers can significantly revive demand. I also see potential in extending PLI schemes to a broader range of FMCG products.”

Samir K Modi, Founder and Managing Director, Colorbar Cosmetics:

“As the Indian beauty and personal care industry eagerly anticipates the Union Budget 2025-2026, the focus must remain on driving innovation, advancing eco-conscious practices, and improving accessibility. A reduction in GST rates on cosmetics and skincare products from 18% could significantly enhance affordability, boost consumer demand, and accelerate growth across the sector.”

Arvind Varchaswi, MD, Sri Sri Tattva:

“The upcoming budget provides an opportunity to boost the FMCG industry, with a focus on generating a good portion of India’s GDP by creating new jobs. By enacting tax reforms, encouraging ecological packaging, and stimulating product innovation, the government can promote growth while maintaining India's rich legacy. We look forward to measures that improve access to natural goods, the wellness industry, and promote exports. Additionally, there should be a focus on Ayurvedic products and natural wellbeing. Such initiatives would not only help to boost economic growth, but would also promote Ayurveda as a reliable global solution for holistic well-being.”

Malvika Jain, Founder, SEREKO:

“The beauty industry in India continues to evolve, driven by innovation and a deeper understanding of consumer needs. At SEREKO, we are at the forefront of this shift with our focus on psycho-dermatology. For the upcoming budget, we hope to see initiatives that encourage innovation and research in the beauty and wellness space. Reduced taxes on specialized and innovative beauty products can make advanced solutions more accessible to consumers.”

Prateek Bedi, Assistant Professor - Finance and Accounting, IMI New Delhi:

“Boosting Disposable Income through Income Tax Reforms:

A relaxation in the basic income tax exemption limit and an increase in the standard deduction could catalyze significant economic benefits, resulting in a 5–7% rise in disposable income for middle-class households, stimulating a 6% increase in consumer spending on FMCG products. This would contribute directly to GDP growth.

Reducing GST Rates on Mass-Consumption FMCG Products:

A reduction in GST rates from 18% to 12% on mass-consumption FMCG products could be a game-changer for the sector, driving an 8% increase in volume sales of mass-market FMCG goods.

Incentivizing Rural Growth and Innovation:

A proposed Rs 10,000 crore FMCG Rural Growth Fund to improve rural distribution networks could drive a 10% growth in rural FMCG sales. Moreover, tax deductions for R&D in sustainable packaging and health-focused products could support innovation and premium product categories.”

Industry experts are all eager to see the government take bold steps to strengthen the FMCG sector, with a particular emphasis on rural markets, tax reforms, and sustainable practices. The upcoming budget could play a pivotal role in driving the industry’s growth and ensuring that it continues to be a key contributor to India’s economy.

Dheeraj Arora, Managing Director & CEO, Hygienic Research Institute Pvt. Ltd.(HRIPL)

“The Union Budget 2025-26 holds the potential to be a game-changer, particularly for tax reforms that position India as a leading global economic force. We anticipate a strategic focus on boosting private consumption and modestly enhancing investment activity, which can act as critical growth pillars amidst global uncertainties. Measures addressing structural supply-chain challenges, incentivizing domestic production, and reducing delivery costs will not only bolster growth but also empower India's economic resilience.”

Rohit Gupta, Vice President-Finance, Hygienic Research Institute Private Limited(HRIPL)

“In light of global trade volatility, the upcoming Union Budget is expected to prioritize initiatives that enhance the competitiveness of Indian exports. Steps such as tariff rationalization, duty exemptions, and effective remission schemes could significantly lower export costs, enabling India to solidify its global trade footprint. Additionally, with elections behind us, we foresee government spending accelerating in FY 2025, creating a conducive environment for long-term agricultural value chain development and industrial growth.”