Smaller cities to boost festive demand, GST cuts to fuel the momentum

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As GST cuts come into force from September 22, fast moving consumer goods (FMCG), e-commerce  and quick commerce companies are anticipating a surge in demand, with India’s tier 2 and 3 cities  emerging as the epicentre of festive spending.

The central government's revised GST rates on consumption goods are expected to lift sales of  staples, packaged goods and consumer durables.

"Over the last ten days, almost all existing stocks in the market have been aligned with the revised tax structure through special trade discounts and QPS schemes offered by FMCG companies," said Dhairyashil Patil, National President, All India Consumer Products Distributors Federation (AICPDF).

"Retailers are already offering reduced rates across product categories, ensuring that consumers enjoy the immediate benefits of GST 2.0 without disruption," Patil added.

The ongoing festive season is crucial for FMCG majors, coming after several quarters of urban demand being dampened by persistent inflation. To offset the slowdown, companies shifted their focus to rural markets, which continued to show relatively stronger growth trends.

Commenting on the increased consumption for non-urban areas, Swiggy's quick commerce platform Instamart said that its 'Quick India Movement' sale saw Bathinda grow 18x, Ludhiana 15x, and Meerut 12x compared to regular days, led by earbuds, energy drinks and dishwash products.

Amazon, too, is betting big on the smaller towns, noting that 65 percent of its orders and 85 percent of new customers now come from beyond the metros.

“Tier 2 and tier 3 are a very exciting space for us. We’ve been expanding our fulfilment and delivery infrastructure in these markets, including new centres in Nagpur, Hubli, Visakhapatnam ” an Amazon India spokesperson told Moneycontrol. “In fact, 65 percent of all our orders and 85 percent of new customers now come from beyond the metros, underscoring the growing appetite from smaller cities," the spokesperson added.

Investment firm Wright Research pointed out multiple levers including the GST rationalisation that is  fuelling the consumption boost.

"GST rationalisation is just one of three major levers that are likely to drive India’s consumption cycle. Rural incomes are already showing improvement thanks to strong kharif yields, higher procurement prices, and women-centric transfer programmes. For the first time since 2021, rural wage growth has outpaced inflation, translating into higher disposable incomes. At the same time, falling consumer inflation is improving real household incomes across both urban and rural India, freeing up additional spending power for essentials and discretionary items. Together with GST-driven price cuts, these forces create a virtuous cycle of rising consumption," Wright Research said in its note earlier this month.