The Reserve Bank of India’s (RBI's) recent rate cuts are expected to breathe new life into the fast-moving consumer goods (FMCG) sector, as lower borrowing costs and improved consumer sentiment pave the way for increased spending on discretionary items. With inflation under control and monetary easing underway, industry players anticipate a revival in demand — particularly in the personal and home care segments — as higher disposable incomes spur both consumption and investment.
The renewed optimism comes as most FMCG companies reported low single-digit sales growth for the financial year ended March 2025, hit by prolonged urban sluggishness and commodity inflation (such as rising tea, palm oil, coffee prices, etc). FMCG purchases in the first quarter of FY26 for in-home consumption grew 3.5 per cent according to Kantar's FMCG Pulse report, the slowest since the final quarter of the calendar year 2022.
FMCG volume growth in Q1 2025 plunged to 5.1 per cent compared to 6.8 percent in Q1 2024, according to Neilsen. However, SKU growth saw a year-on-year (YOY) increase as small packs attracted more demand.
Companies expect the government’s announced liquidity measures, coupled with a favourable monsoon forecast, to boost rural demand and support overall consumption recovery.
"This monetary easing presents a strong opportunity for the FMCG sector, driving fresh investments and revitalising the consumption cycle. With inflation remaining within the RBI's target range, consumer confidence in discretionary spending is likely to rise, benefitting categories such as personal and home care," said Krishna Khatwani, Head of Sales (India), Godrej Consumer Products.
However, urban consumers' preference for premium products may not also mean a recovery for companies selling mass products, according to Zydus Wellness Chief Executive Officer Tarun Arora.
"Things should be moving up because there is a structural shift, which is driving the agenda in favour of premium items in the consumer basket," Arora said, explaining that urban consumers are becoming more selective, opting for fewer but more premium purchases.
Market research firm Kantar's June FMCG report noted that breakfast is getting premiumised in the upper economic strata, with granola, quinoa-based cereals, high-protein mixes gaining traction. As a result, cornflakes is the first victim.
Similarly, in the most premium FMCG clusters of Bangalore, consumers are spending less on traditional hair products like hair oils, but more on hair dressing. They also focus more on smelling good as they spend on premium talcum powder and deodorants, according to the report.
Meanwhile, the consumer durables sector, which suffered the most due to unseasonal rains and a shorter summer, expects a boost in appliance purchases.
"The rate cut will provide EMI relief, especially to homebuyers with long-term loans. This will increase disposable income in the hands of consumers which can boost appliance purchases. While the rate cut is not expected to directly impact loan terms for durables, the enhanced liquidity should help the durables sector as well," said Kamal Nandi, Business Head and EVP, Appliances, Godrej Enterprises Group.
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