The upcoming Budget is an opportunity to forward the “GST 2.0” agenda by simplifying compliance, rationalising rates and strengthening formalisation to serve as a catalyst for the multi-trillion-rupee consumer market, the industry stakeholders have said.
This push comes as the sector enters FY27 facing divergent demand trends — resilient rural consumption is consistently outpacing urban growth, where mass-market segments remain under pressure from premiumisation and a shift toward smaller, affordable packs.
Big Trends
- Rural demand continues to outperform urban markets, supported by steady government spending and easing food inflation, while urban mass consumption remains soft.
- Premiumisation remains a key portfolio strategy for FMCG companies, even as lower-income consumers down-trade to smaller packs.
- E-commerce and quick commerce are gaining scale in metros, increasing the importance of last-mile logistics and fulfilment costs in overall margins.
Challenges
- Rising input costs of raw materials like coffee, copra, palm oil and packaging materials, squeeze profit margins, forcing price hikes that deter consumers.
- Inverted duty structures under GST have led to accumulation of unutilised input tax credits, particularly in categories where output GST rates have been reduced to 5 percent.
- Higher GST on services such as advertising, logistics and machinery purchases continues to inflate working capital requirements for FMCG and D2C brands.
- Ambiguity in GST classification for borderline products and high compliance burden remain persistent pain points for retailers and manufacturers.
What happened in the last Budget
- A key thrust was boosting consumption through direct tax relief for the middle class, including nil income tax on annual income up to Rs 12 lakh, aimed at increasing disposable income and reviving urban demand.
- Rural demand was a major priority, with new schemes such as the Prime Minister Dhan-Dhaanya Krishi Yojana and the Building Rural Prosperity and Resilience programme to raise agricultural productivity, rural incomes and employment, directly supporting consumption in hinterland markets
What industry wants
The Budget 2026 should focus on operationalising GST 2.0 reforms through clear circulars, simplified registration processes and faster refunds to ensure benefits translate on the ground.
An tax expert, said GST 2.0 should aim to correct inverted duty structures, rationalise rates and embed technology-driven compliance, which could lower supply chain costs and improve pricing transparency for retailers and FMCG companies.
He listed some key industry expectations which include clarity on GST classification for borderline products, further rate recalibration for apparel and footwear priced above Rs 2,500, and lower GST on logistics and last-mile delivery services to support quick commerce. Industry players are also seeking refunds of accumulated input tax credits on services and capital goods, easing working capital stress and encouraging fresh investments in manufacturing capacity.
Marico chief executive officer said the government has already put in place several enabling measures, with GST reduction being a defining development. He added that maintaining low inflation, fiscal discipline, continued infrastructure investment and job creation will be critical to sustaining consumption growth and private sector investment.
“We expect the Budget to focus on boosting rural and semi-urban demand through higher allocations towards infrastructure development, agriculture, and employment generation. Increased disposable income in these regions directly translates into higher consumption for mass-market FMCG and beverage brands like ours,” said Co-Founder & COO of beverage brand Lahori Zeera.
