Budget 2025: FMCG sector may see policy measures aimed at driving consumption, experts say

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The fast-moving consumer goods (FMCG) industry may see policy interventions and allocations in the upcoming Union Budget to stimulate demand in both rural and urban areas, which saw a dip in consumption due to high inflation in 2024, according to experts.

Consumer demand, especially from the middle and lower-middle classes, has been sluggish, slowing volume growth for FMCG firms, which struggled to reach double-digit growth in the first half of FY25.

According to Kantar's FMCG Pulse report, the FMCG sector in India experienced a slowdown in the August-October 2024 quarter with a growth rate of 4.3 percent, down from 6.4 percent a year ago.

"The FMCG sector faces significant challenges, including rising input costs for raw materials like palm oil, coffee, cocoa, and wheat. These pressures have led to price hikes (3 percent-5 percent) and ‘shrinkflation’, reducing product sizes to maintain affordability but risking consumer trust. Policy interventions are needed to stimulate demand and provide relief to manufacturers," said Priyanka Duggal, Partner at Grant Thornton Bharat.

Experts said that the Budget should prioritise improving rural infrastructure and expanding direct benefit transfer programs to increase disposable income in underserved areas, which could boost consumption patterns. Rural demand growth is already outpacing that of stressed urban markets, and corporates expect the full impact of rural recovery to be realised in FY26.  "Increased allocation to urban development projects and services industry leading to job creation may potentially drive urban demand and urban remittances," brokerage Axis Securities said in its Budget expectations note.

Incentives key to boost consumption

Analysts also highlighted the need for employment-linked incentives, a National Retail Trade Policy, expanded PLI schemes for consumer goods, and affordable financing for small retailers.

"To promote employment generation, the Finance Minister announced incentive schemes tied to employment in the previous Budget, but these have not yet been implemented. There is an urgent need for the formal introduction of these employment-linked incentive schemes at the earliest," said Paresh Parekh, Partner and Retail Tax Leader at EY India.

He said the Budget 2025 could serve as a driving force for the expansion of the consumer and retail industry.

“Through initiatives that stimulate spending, policy overhauls, incentive schemes, digital advancements, and eco-friendly practices, the government has the opportunity to foster a robust and equitable retail environment,” Parekh said, adding that such actions are poised to strengthen enterprises and enhance consumer capabilities, thereby fuelling sustained economic growth.