GST Transition Disrupts FMCG Sales, Slows Volume Growth to 2.6% in December Quarter
Consumption of packaged goods including soaps, shampoos, biscuits, and other fast-moving consumer goods (FMCG) experienced a significant slowdown during the December quarter, with volume growth dropping sharply to 2.6% compared to 6.2% in the same period a year ago. This decline, revealed in NielsenIQ (NIQ) data released on Thursday, has been attributed primarily to disruptions caused by the transition to a new goods and services tax (GST) regime implemented from September 22.
Kirana Stores Bear the Brunt of GST Transition
The GST changes particularly impacted neighborhood kirana stores, which continue to drive the bulk of household grocery shopping across large parts of India. Nearly 60% of the FMCG portfolio underwent GST rate revisions, requiring coordinated pricing adjustments across manufacturers, distributors, and retailers. While organized retail channels adapted more quickly to these changes, traditional trade performance suffered temporary setbacks.
"The moderation reflects a combination of a higher festive base in the previous year and transitional adjustments linked to GST rate revisions," NIQ analysts explained. Many consumers delayed purchases to benefit from anticipated price cuts, while kirana stores refused to stock old inventory, waiting instead for fresh batches of products with updated pricing to hit the markets.
Value Growth Also Declines Amid Easing Prices
Value growth followed a similar downward trend, declining to 7.8% in the December quarter from 10.1% in the year-ago period. This slowdown occurred against a backdrop of easing prices, with price growth reaching a four-quarter low during the October-December period. The combination of tax cuts and festive promotions contributed to this price moderation.
Sharang Pant, head of customer success for FMCG and tech & durables at NIQ India, noted that "the positive impact of GST on consumption is expected to become more visible from the March quarter." Companies in their December quarter earnings have already indicated gradual recovery in consumption following tax cuts, though ongoing geopolitical tensions and a depreciating rupee pose risks of potential price hikes that could weigh on revival efforts.
Food and Personal Care Segments Both Show Declines
The consumption slowdown affected both major FMCG categories:
- Home & Personal Care (HPC): Volume growth dropped to 1.9% in the December quarter from 7.2% in the year-ago period
- Food Products: Volume growth slipped to 2.8% from 5.8% in the year-ago quarter
While stabilization in edible oil prices and tax cuts provided some support for food volume growth, both segments experienced notable declines compared to previous performance. The data underscores how GST-related disruptions have temporarily impacted India's FMCG sector, with traditional trade channels facing particular challenges during the transition period.
