After a turbulent year marked by weak consumption, cash flow constraints, and a sluggish macroeconomic environment, India’s fast-moving consumer goods (FMCG) sector is beginning to show early signs of revival. Even the typically high-performing festive months had failed to lift spirits last year. However, industry leaders are cautiously optimistic that the worst may be over.
Industry observers believe that domestic consumer demand is set to improve over the next 12 to 18 months. With a favourable monsoon forecast, muted inflation, and revised income tax slabs, households could see a marginal rise in disposable income. A potential hike under the upcoming Pay Commission may also provide a further boost, giving FMCG companies reason to be hopeful.
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Recovery gathers momentum
The preceding quarter was the strongest in a year for India’s packaged consumer goods companies, which collectively reported 10.6% year-on-year growth in value terms. According to a report by NielsenIQ, rural consumption was the key driver, registering 11% growth in Q4 and outpacing urban demand for the fifth consecutive quarter. This trend signals a vital shift in the sector’s growth engine.
To tackle the slowdown, companies have focused on reconfiguring price points—pushing smaller packs, reducing grammage, and strategically hiking prices. These measures have helped brands maintain volumes in a cost-sensitive market.
Rural revival brightens sector outlook
The divergence between urban and rural demand has become increasingly stark. While urban consumption has remained under pressure, rural markets—buoyed by strong monsoons and improved agricultural output—have shown surprising resilience. This marks a sharp turnaround from the pre-pandemic years, when rural slowdown triggered one of the sector’s worst periods in recent memory.
Today, rural India accounts for just over a third of overall FMCG sales, but it is punching well above its weight in driving growth. Traditional retail volumes rose to 6.2% in Q4FY25, up from 5% a year earlier, reflecting robust demand in the hinterlands. According to Sitapati, rural demand will likely continue to outperform its urban counterpart in the near future.
What’s hot, what’s not in FMCG
Not all product categories have benefitted equally from the nascent recovery. The home and personal care (HPC) segment is leading the revival, with 5.7% growth in the March quarter—largely driven by rural demand. In contrast, food consumption slowed to 4.9% in Q4FY25, compared with 6% a year earlier, due to lower volumes in essential staples like edible oils and palm oil, where prices rose sharply.
To unlock fresh growth avenues, FMCG firms are exploring high-potential categories such as body wash, liquid detergents, deodorants, air fresheners, pet care, and sexual wellness. These emerging segments are expected to help widen the consumption basket across both urban and rural markets.
Digital disruption and changing shopping habits
The e-commerce boom continues to reshape consumer behaviour, especially in urban India. Smartphone penetration and cheap data have enabled the digital revolution, transforming the way Indians buy shampoos and snacks. NielsenIQ notes that online sales have made significant inroads in India’s eight metros, eroding the market share of both modern trade (22.8%) and traditional retail (62.5%).
Online shopper penetration is rising, with more frequent purchase occasions and larger basket sizes. This transition, while promising for digital platforms, poses a challenge for brick-and-mortar players who now must recalibrate their strategies.
A barometer of economic health
The FMCG sector has long been viewed as a barometer of India’s economic health. A rise in purchases of everyday goods like soaps, biscuits, and shampoos typically signals growing consumer confidence and a vibrant middle class. Conversely, when sales slow, it often reflects broader economic distress.
For policymakers, these trends offer vital cues about the economy’s pulse—particularly around inflation, employment, and income trends. While the rural comeback is reassuring, weak demand in metro cities is sounding alarm bells. Mounting monthly household costs—driven by high EMIs, rising food inflation, and muted wage growth—are constraining urban consumption.
A joint study by FICCI and Quess Corp reveals that wage growth across six key sectors—IT, retail, logistics, FMCG, BFSI, and manufacturing—has remained in low single digits for several years. Adjusted for inflation, real wage growth has been negligible or even negative. This combination of stagnant income, limited job creation, and high inflation has dulled consumption impulses among India’s middle class.
The government has already deployed several levers to stimulate consumption, including tax reforms, monetary easing, and budgetary incentives. However, whether these moves will translate into a sustained revival remains to be seen.