GST transition sparks short-term FMCG demand dip in Sep quarter: Report

FMCG volumes eased to 5.4% in Q2 as GST transition caused a brief slowdown, though rural markets continued to outpace urban areas and overall sector growth stayed strong at 12.9%

Transition to the new Goods and Services Tax (GST) regime in the September quarter led to a slight moderation in volumes in the Indian fast-moving consumer goods (FMCG) sector to 5.4 per cent during the period, market researcher NielsenIQ India stated in a new report.

 

Meanwhile, the sector recorded overall growth of 12.9 per cent, driven by sustained rural demand and a steady urban recovery. However, rural markets continued to grow ahead of urban for the seventh consecutive quarter.

 

Rural India has recorded a 7.7 per cent increase compared to 3.7 per cent in urban areas. However, the gap is narrowing as urban areas show signs of sequential recovery, driven primarily by smaller urban towns. 

“The Indian FMCG sector continues to demonstrate resilience, with rural markets leading the charge for seven consecutive quarters. While urban recovery is gaining traction, particularly in smaller towns, rural demand remains the cornerstone of volume expansion,” said Sharang Pant, head of customer success, FMCG, NielsenIQ India, in the report.

 

The transition to the new GST regime temporarily slowed the home and personal care segment, while food maintained its ground.

 

During the July–August–September quarter, “food consumption largely remained stable at 5.4 per cent, driven by a balance in increased volumes in staples categories and decline in volumes in impulse and habit-forming categories,” the report stated.

 

Meanwhile, “home and personal care (HPC) slowed down in volumes with 5.5 per cent consumption growth. Over-the-counter categories posted a robust 14.8 per cent increase in value sales, largely driven by a 9.7 per cent rise in prices,” it added.

 

Convenience continues to drive consumption in the market, the researcher shows, pointing to the increasing share of e-commerce. According to the report, e-commerce shares went up further by 1 per cent across all-India metros and eight metros.

 

“E-commerce continues to be a key growth engine, especially in the top eight metros. With inflation easing, the outlook for consumption remains optimistic and the impact of GST changes on consumption is expected in the next two quarters,” Pant added. 

He further said sustaining this momentum will require deeper channel engagement and sharper, value-led propositions.

 

“The industry is entering a phase where agility and consumer-centric innovation will be critical to future success. Additionally, the rapid rise of small/new manufacturers outpacing overall industry growth highlights shifting market dynamics and intensifying competition,” he added.

 

According to the report, small manufacturers continued to drive FMCG consumption in the September quarter, supported by steady volume growth across both Food and HPC categories on a lower base. In contrast, large players saw a slowdown in consumption during the same period.

 

Giants and large players saw 8.8 per cent and 13.1 per cent growth respectively, during the quarter, much lesser than the 17.1 per cent witnessed by mid-size players and 20.4 per cent growth seen by small players.