Union Budget 2025: Tax relief and urban growth key to FMCG sector's recovery

The FMCG (Fast-Moving Consumer Goods) sector is closely watching the upcoming Union Budget 2025, hoping for measures from the Finance Minister that can stimulate demand and drive consumption growth. The sector, especially in urban areas, has faced challenges in recent months, with high inflation dampening consumer spending and slowing sales growth for major consumer brands.

FMCG stocks, including HUL, Britannia, Godrej Consumer, Marico, Dabur India, Nestle India, and Colgate Palmolive, have seen a surge in share prices of 1-7 percent this month. However, over the past six months, they have experienced declines of up to 18 percent.

Experts are calling for changes in income tax structures in the Budget that could increase disposable incomes, along with greater investment in rural infrastructure and expanded direct benefit transfer programs. These steps would be key to reigniting consumer spending, particularly in the FMCG sector.

Analysts at Axis Securities suggest that revising income tax slabs could significantly boost demand across consumer sectors. Tax relief targeted at middle-class and salaried groups would leave them with more disposable income, driving increased spending on FMCG products.

A 5-7 percent increase in disposable income for middle-income households could result in a 6 percent rise in consumer spending on essential goods, which in turn would contribute to a 0.7 percent increase in GDP, according to market experts.

In addition to tax relief, experts stress the importance of policies supporting rural areas. Enhanced funding for the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) and targeted government schemes to boost farm and non-farm incomes would strengthen rural purchasing power. Investments in digital infrastructure, skill development, and support for MSMEs would further stimulate economic activity in these regions.

For urban areas, experts advocate for increased investment in urban development projects and the services industry, creating jobs, increasing remittances, and boosting demand in cities. These measures would support the FMCG sector's growth and contribute to broader economic recovery.

Urban sales volumes have fallen sharply in the last fiscal quarter, with a decline of over 10 percent in mass-market segments in major metropolitan cities, according to a Deloitte report on Budget expectations. The drop was largely due to high food inflation, which has remained above the RBI's target of 6.4 percent, leading to a 15 percent decrease in consumption among lower-income urban consumers.

As the government prepares for the 2025 Union Budget, experts hope that comprehensive measures addressing both urban and rural challenges will stimulate consumer spending and help revitalize the FMCG sector, contributing to overall economic growth.

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