With consumption showing early signs of recovery but margins still under pressure, India’s fast-moving consumer goods (FMCG) sector is looking at the upcoming Union Budget as a critical lever to sustain demand and improve cost competitiveness. Industry leaders are calling for measures that boost disposable incomes, revive rural spending, rationalise goods and services tax (GST) structures and support domestic manufacturing, even as they seek policy clarity to manage input volatility and ease the compliance burden.
FMCG players are seeking rationalisation of input taxes, easier utilisation and refunds of input tax credits and targeted manufacturing incentives under Make in India, while also urging higher allocations for food processing, cold-chain infrastructure and micro, small and medium enterprise (MSME) credit support to build a more efficient and globally competitive FMCG ecosystem.
“From an FMCG standpoint, the budget should focus on putting more money in consumers’ hands, across urban and rural markets. The volume growth we are seeing across everyday categories shows demand is holding up and the urban-rural gap is narrowing. Managing commodity volatility through relief on key inputs will help companies avoid passing costs to consumers,” Mayank Shah, Vice President, Parle Products, told BW Businessworld.
From Consumption To Input Tax Credits
While demand stimulus remains a priority, FMCG leaders want the budget to actively enable manufacturing depth, rural production and global competitiveness. While noting that the strategic tax reliefs provided to the FMCG sector have been instrumental in driving a visible recovery and fuelling a robust resurgence in consumer demand, companies are now looking forward to a consumption-driven framework that strengthens affordability and market access.
“We request for targeted manufacturing support to bolster the Make in India mission. This can be achieved by facilitating measures such as capital subsidies and land at concessional rates to bolster rural production and consumption, alongside providing critical tax relief through Input Tax Credits (ITC). To maximise the growth of the FMCG sector, we request the government to implement a comprehensive support framework that helps Indian companies go global to successfully navigate the complex global environment and set up a robust presence across the globe,” said Rajiv Kumar, Vice Chairman, DS Group.
However, industry executives point out that despite GST rationalisation in several FMCG categories, the inability to monetise input tax credits is becoming a structural bottleneck. A recurring concern across FMCG and beverage companies is the inverted GST structure, which continues to lock up working capital and inflate conversion costs.
“In most FMCG categories, after the GST reduction, most items now fall under the 5 per cent GST slab, which makes it difficult for brand owners, as most of the services used in manufacturing fall under a higher GST slab. As a result, they are unable to fully utilise the excess ITC. For brands spending significantly on marketing, the GST paid on ad spends continues to accumulate. Currently, there is no mechanism available to settle this in the form of refunds, which adds to the cost of manufacturing and selling,” stated Nikhil Doda, Co-founder and Chief Operating Officer, Lahori Zeera, the flagship brand of Archian Foods.
Reviving The Rural Engine
Industry leaders want the budget to focus on boosting rural and semi-urban demand through higher allocations towards infrastructure development, agriculture and employment generation. Mass consumption categories, including routine and discretionary, are closely linked to household cash flows. From a macroeconomic perspective, income-led demand measures can play a critical role in driving consumption momentum.
The Indian rural system is still dependent on cyclical agricultural earnings. Extending tax benefits for products specifically meant for rural/lower middle class consumers, not just by category but also by putting down price, especially for dosage packs, can improve affordability. Leaders pointed out that a long-term policy for the same, certainty enables businesses to plan investments, manage pricing, and sustain value offerings. Echoing similar sentiments, industry experts added that strengthening rural incomes and access would have the strongest impact on consumption.
“Clarity on neutral tax treatment for post-sale discounts would further reduce friction in the system, allowing companies to pass on benefits to consumers more seamlessly. Together, these measures can support volume growth and contribute to a more balanced and sustainable consumption recovery,” noted Dheeraj Arora, Chief Executive Officer (CEO) and Managing Director (MD), Hygienic Research Institute (HRIPL).
Higher budgetary allocation towards agriculture, rural infrastructure, and employment-linked schemes directly enhances purchasing power at the grassroots. Temporary relief through lower import duties on key inputs, packaging materials, and essential raw materials can help stabilise margins
“When rural households experience income stability, spending on essential food and daily-use categories picks up quickly. Complemented by measures that keep staple food products affordable, this approach can create sustained demand momentum across rural and semi-urban markets,” highlighted Subir Ghosh, Managing Director, Annapurna Group.
Beverages Seek A Level Playing Field
Among the most price-sensitive segments within the consumer goods space, the beverages category is looking to the budget for targeted support to compete with global players and scale deeper into India’s heartland. Support for local sourcing and indigenous formulations, need for incentives for small & mid-sized manufacturers and distribution and infrastructure support for smaller markets form the base of expectations.
“For Indian beverage brands, especially those rooted in indigenous tastes and local ingredients like us, the upcoming budget is a chance to level the playing field with global giants. What we need now are targeted incentives for small and mid-sized beverage manufacturers, streamlined regulatory processes, and support for distribution infrastructure that helps us scale deeper into India’s smaller markets, including taxation support for local manufacturers,” stated Sathya Shankar, Managing Director, House of Bindu.
Doda added that support for MSMEs remains crucial. Simplified compliance norms, easier access to working capital and extension of credit-linked incentive schemes can significantly help growing Indian brands scale sustainably. Additionally, incentives for make in India manufacturing, especially for food and beverage companies investing in local sourcing and production, would strengthen self-reliance while creating employment, he added.
Global Manufacturing Hub Under Make In India
Beyond consumption and taxation, FMCG leaders are urging the government to use the budget as a catalyst to position India as a competitive global manufacturing base. Experts demand focus on efficiency, quality and fiscal support to manage volatile inputs without compromising affordability.
“Global manufacturing standards have demonstrated that lower labour cost and scale alone is not sufficient. It’s a combination of automation, efficiency, consistency, speed and skill development that makes it competitive. For that Indian manufacturing set up will have to undergo a structural shift and India will have to become an attractive destination as a foreign manufacturing hub,” Arora explained.
The FMCG sector is seeking policies that encourage confident spending while keeping business simple. As consumers across age groups focus on wellness, quality, and value, measures that boost disposable incomes, simplify taxes, and reduce compliance will help brands respond to evolving lifestyle expectations.
“With input costs remaining unpredictable, time-bound fiscal support can help FMCG companies manage margins. Rationalising taxes on key inputs and encouraging efficiency-driven investments would allow brands to absorb cost pressures while continuing to offer quality, affordable products aligned with modern lifestyles,” noted Arvind Patel, MD, Bharat Vedica, a Patel venture.
With organised QSR brands increasingly expanding into tier 2 and 3 markets, targeted incentives or capex-linked support can help accelerate growth in high-potential cities. Given the sector’s strong contribution to youth employment, budget policies that recognise job creation and support skill development and workforce expansion would further strengthen the industry’s long-term economic impact
“As we look ahead to the upcoming union budget, rationalisation of GST on commercial rentals would meaningfully ease cost pressures for the restaurant and QSR sector, particularly as input tax credit is not available to the industry. Introducing a single-window clearance system across food safety, environment, labour and taxation can significantly improve ease of doing business by reducing compliance complexity and delays,” emphasised Aayush Madhusudan Agrawal, Founder and Director, Lenexis Foodworks.
As the sector looks to move from stabilisation to scale, FMCG leaders want the budget to simultaneously stimulate consumption, ease cost pressures and strengthen manufacturing competitiveness. The choices made this year will determine whether India’s largest consumer industry merely sustains growth or builds the foundation for long-term, global leadership. |
