Following multiple quarters of muted urban demand due to increasing inflation, the current holiday season is critical for FMCG companies.
Festive Demand Surge Expected
With India’s tier 2 and tier 3 cities emerging as the hub of seasonal spending, fast-moving consumer goods (FMCG), e-commerce, and rapid commerce enterprises are expecting a boost in demand as the GST cuts take effect on September 22.
It is anticipated that the federal government’s updated GST rates on consumer items would increase sales of consumer durables, packaged goods, and basics.
The National President of the All India Consumer Products Distributors Federation (AICPDF), Dhairyashil Patil, said that FMCG businesses’ special trade discounts and QPS programs had brought almost all of the market’s inventories into compliance with the updated tax structure during the last 10 days.
Rural Festive Spending Soars
“Retailers are already providing discounted prices across product categories, guaranteeing that customers have uninterrupted access to the instant advantages of GST 2.0,” Patil said.
Following many quarters in which persistent inflation impacted urban demand, the current holiday season is critical for FMCG companies. Businesses turned their attention to rural areas, which continued to exhibit comparatively better growth tendencies, in an effort to counteract the downturn.
Speaking about the surge in consumption for non-urban regions, Swiggy’s rapid commerce platform Instamart said that its ‘rapid India Movement‘ sale saw Bathinda grow 18 times, Ludhiana grow 15 times, and Meerut grow 12 times compared to normal days. The most popular items were dishwashing supplies, energy drinks, and earphones.
Amazon Bets Big on Bharat
Given that 85% of its new consumers and 65% of its purchases currently originate outside of major cities, Amazon is also placing a significant wager on smaller communities.
For us, Tier 2 and Tier 3 are very intriguing areas. An Amazon India representative told Moneycontrol, “We have been growing our fulfillment and delivery infrastructure in these areas, including new centers in Nagpur, Hubli, and Visakhapatnam.” The representative went on to say, “In fact, 85 percent of our new clients and 65 percent of all our purchases currently originate from outside the metros, emphasizing the rising interest from smaller communities.”
The rationalization of the GST is one of the levers identified by investment company Wright Research as contributing to the increase in consumption.
GST, Wages Fuel Consumption
One of the three main levers that are probably going to influence India’s consumption cycle is the rationalization of the GST. Strong kharif crops, increased procurement costs, and transfer programs focused on women are already improving rural earnings.
Rural wage growth has surpassed inflation for the first time since 2021, increasing disposable earnings. Simultaneously, declining consumer inflation is raising real family earnings in India’s cities and rural areas, giving people more money to spend on necessities and luxury goods. These factors, when combined with price reductions brought on by the GST, provide a positive feedback loop that increases consumption, Wright Research said in a note earlier this month.