FMCG Industry's High Hopes for Budget 2026: GST Fixes and Rural Revival in Focus
As Finance Minister Nirmala Sitharaman prepares to present the Union Budget tomorrow, India's fast-moving consumer goods (FMCG) sector is vocal about its expectations. The industry, a critical barometer of consumer sentiment, is seeking measures to rationalize customs duties, address the persistent GST inverted duty structure, increase disposable income, and provide targeted support for startups and logistics infrastructure. With consumption patterns under scrutiny, stakeholders emphasize that policy interventions could significantly influence market dynamics.
GST Challenges and Working Capital Pressures
Nikhil Doda, Co-Founder and COO of Lahori Zeera, an Archian Foods brand, highlighted a pressing issue: while most FMCG items now fall under the 5% GST slab after recent reductions, many services attract higher GST rates and are ineligible for input tax credits. This discrepancy creates operational hurdles. Doda explained that purchasing machinery incurs higher GST, but since the output tax slab is lower, manufacturers cannot fully utilize these credits. This leads to a continuous accumulation of credits, escalating working capital requirements, and increasing the overall cost of conversion, thereby squeezing profitability.
Boosting Rural and Semi-Urban Demand
Doda further emphasized that the Budget should prioritize enhancing rural and semi-urban demand through higher allocations for infrastructure development, agriculture, and employment generation. Increased disposable income in these regions directly translates into higher consumption for mass-market FMCG products, he noted. This sentiment is echoed across the industry, as rural areas contribute nearly 60% of FMCG demand, making their economic health paramount for sectoral growth.
MSME Support and Consumption Concerns
Support for Micro, Small, and Medium Enterprises (MSMEs) remains a crucial expectation, given their role in the FMCG ecosystem. However, Pankaj Pandey, head of research at ICICI Securities, offered a note of caution. He suggested that while sectors like defense and railways might receive increased allocations, there could be limited new measures to boost consumption directly. The government has already engaged in front-loading over the past year, reducing personal income tax rates and rationalizing GST rates to stimulate consumption. With fiscal constraints, Pandey anticipates minor tweaks to personal income taxation, possibly aimed at shifting individuals from the old to the new tax regime, rather than sweeping new initiatives.
Economic Survey Insights and Previous Budget Measures
The Economic Survey 2026, tabled in Parliament ahead of the Budget, sets a cautiously optimistic tone. It projects FY26 growth at 7.4% and expects the Indian economy to expand at 6.8-7.2% in FY27, supported by strong macro fundamentals and regulatory reforms. The outlook emphasizes steady growth amid global uncertainty, requiring caution but not pessimism. Reflecting on Budget 2025, key measures included raising the tax-free income limit to ₹12 lakh for salaried individuals, effectively ₹12.75 lakh with standard deduction, to boost disposable income. Additionally, the Dhan Dhanya Krishi Yojna and focus on high-yield seeds aimed to enhance farmer income and rural consumption. Fiscal discipline was maintained, with the revised FY25 fiscal deficit at 4.8% and a target of 4.4% for FY26.
Retail Growth and Sector-Specific Recommendations
Ashish Pandey, Director and Co-Founder of BuyBuyCart, pointed out that organized retail is poised to grow by 15–18% annually over the next few years, with private labels expanding at over 20% CAGR. Daily essentials, personal care, and home category products currently account for 10–12% of organized retail sales and could double their share by 2027. To support this growth, Pandey recommends:
- Easier institutional credit access for franchise partners
- GST rationalization on private-label and essential goods
- Incentives for local sourcing and packaging
- Reduced compliance burdens for small-format retailers
Cassio Simões, MD of Tetra Pak South Asia, views the Budget as a potential catalyst for sustainable change in packaging. He advocates for incentives and an inclusive framework to promote healthier FMCG products and sustainable packaging solutions, strengthening India's food processing and sustainability landscape.
Industry Voices on Innovation and Infrastructure
Prashant Peres, General Manager, India at Mars Snacking, stressed that consumption growth hinges on boosting middle-class spending capacity. The industry seeks support to manage input-cost volatility, particularly from inverted duty structures under GST, which lock up working capital and increase cost pressures. Peres called for policies that shift focus from commodity exports to high-quality, market-ready products, alongside measures to improve ease of doing business, encourage food innovation, and strengthen supply-chain infrastructure.
Paritosh Ladhani, Joint MD of SLMG Beverages, anticipates bold measures to ramp up manufacturing under Atmanirbhar Bharat. His expectations include:
- Continued emphasis on industrial corridors and enhanced connectivity
- More ease-of-doing-business reforms to attract global investments
- Rationalization of GST slabs
- Incentives for sustainable packaging
- Targeted measures to boost rural incomes in tier-2, tier-3 cities, and rural markets
Anjana Ghosh, MD of Scale Sherpas, noted that while last year's Budget focused on fiscal consolidation and infrastructure, 2026 should pivot towards reviving consumption and boosting disposable incomes. Targeted support for employment generation, skill development, and digital enablement for kirana stores is critical, she added, as these stores account for close to 90% of FMCG sales.
Mahesh Ravaria, ED of Beauty Garage, called for focused incentives under the 'Make in India' initiative. He emphasized that rationalized customs duties on critical materials and addressing the GST inverted duty structure would provide homegrown brands with liquidity to invest in research and development and future-ready technology.
Disclaimer: The views and recommendations expressed are those of individual analysts or companies and not of Mint. Investors are advised to consult certified experts before making any investment decisions.
