NIQ: GST 2.0 Sparks Short-Term Dip in FMCG Demand

Sharang Pant, Head of Customer Success - FMCG, NielsenIQ in India, stated, "The Indian FMCG sector continues to demonstrate resilience, with rural markets leading the charge for seventh consecutive quarters. While urban recovery is gaining traction, particularly in smaller towns, rural demand remains the cornerstone of volume expansion. E-commerce continues to be a key growth engine, especially in the top eight metros. With inflation easing, the outlook for consumption remains optimistic and the impact of GST changes on consumption is expected in the next two quarters.

Sustaining this momentum will require deeper channel engagement and sharper, value-led propositions. The industry is entering a phase where agility and consumer-centric innovation will be critical to future success. Additionally, the rapid rise of small/new manufacturers outpacing overall industry growth highlights shifting market dynamics and intensifying competition."

Market Dynamics: Rural Demand Continues to Power FMCG Performance

Rural India has recorded an 7.7% increase compared to 3.7% in urban areas, outpacing urban regions in volume growth for seventh consecutive quarters. However, the gap is narrowing as urban areas show signs of sequential recovery. (Refer to chart 2). This recuperation is primarily driven by smaller urban towns. Metropolitan areas continue to experience a decline in offline sales owing to a shift towards E-comm. However, Modern Trade (MT) is on a revival trajectory as well.

GST Transition Temporarily Slows HPC While Food Maintains Ground

In Q3 2025, food consumption largely remained stable at 5.4%, driven by a balance in increased volumes in staples categories and decline in volumes in Impulse and Habit-forming categories. Meanwhile, Home and Personal Care (HPC) slowed down in volumes with 5.5% consumption growth. Over-the-counter categories posted a robust 14.8% increase in value sales, largely driven by a 9.7% rise in prices. (Refer to chart 3).

E-commerce Continues to Gain Share

E-commerce shares are further up by 1% across all India Metros and eight metros. Q3'25 Omnichannel volume growth remains driven by E-comm, with Modern Trade also contributing this quarter. However, a marginal softening in E-comm volume growth is observed in Q3'25. At the category level, Food shows slight moderation in volume growth, led by Staples and Habit-Forming baskets. Another factor contributing to this volume slowdown is the drop in shopper penetration (Q3'25 vs. Q2'25).

Small Manufacturers Maintain Steady Growth

Small manufacturers continued to drive FMCG consumption in Q3 2025, supported by steady volume growth across both Food and HPC categories on a lower base. In contrast, large players saw a slowdown in consumption in the latest quarter.

(Refer to chart 5).

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