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As Q1 FY26 concludes, India’s consumer economy reflects a complex interplay of falling inflation and cautious sentiment. While retail inflation in India eased significantly—dropping to 2.28% in May, the lowest in over six years—consumer sentiment remains restrained.
The sharp moderation in food prices, particularly vegetables, pulses, and edible oils, played a key role in the disinflation trend. Government policy interventions, including cuts in import duties, also contributed to easing the food price trade equation. However, this relief has not sparked a widespread consumption rebound, with uneven demand across regions and income segments.
Despite improving cost conditions, the FMCG sector’s performance this quarter remained subdued. Urban demand, especially for packaged foods and affordable personal care, was expected to rise as inflation cooled, but volume growth in metros stayed flat or negative.
Instead, premium categories—health beverages, skincare, and hygiene products saw selective growth, highlighting an ongoing trend toward premiumisation. Mass products, on the other hand, continued to receive muted responses from middle and lower-middle-income households.
Long impacted by high inflation and stagnant wages, the rural market is beginning to show green shoots of recovery. FMCG companies with strong rural distribution saw a gradual improvement in essentials and health-related products.
However, the recovery remains uneven. In many regions, price-sensitive consumers are still cautious, delaying discretionary purchases. Brands respond with smaller pack sizes, region-specific promotions, and renewed supply chain agility to meet rural demand pockets.
Overall, FMCG volume growth in India remained in the low to mid-single-digit range. While earlier price increases aided revenue growth, companies continue recalibrating product mixes and rationalising SKUs. Many firms are streamlining their portfolios to focus on high-performing categories and digital-first innovations. Modern retail and quick commerce have become vital channels for piloting new products, promoting premium offerings, and driving end-of-quarter sales. Brands that embraced e-commerce and direct-to-consumer models early are now reaping a distinct competitive advantage.
One of the biggest developments this quarter was the signing of the India–UK Free Trade Agreement. The India–UK FTA impact will be significant for consumer sectors on both sides. For Indian exporters, the deal creates a smoother path to the UK for processed foods, Ayurvedic personal care, textiles, and footwear—labour-intensive sectors that benefit from reduced tariffs and simplified norms. Conversely, UK brands now have expanded access to Indian consumers, particularly in premium segments like chocolates, alcoholic beverages, and grooming products. Indian companies must now innovate faster, improve packaging and product appeal, and explore co-branded or joint venture opportunities to stay competitive in the face of this global shift.
In the fast-moving electrical goods (FMEG) segment, early optimism was driven by a projected 25–30% rise in heatwave days. In March and early April, this initially spurred strong demand for cooling appliances like air conditioners and refrigerators. However, unseasonal rainfall and cyclonic disruptions across North and East India in April and May caused a significant decline in discretionary purchases. Sales of fans and coolers dropped sharply, resulting in inventory pile-ups and production cutbacks. Manufacturers responded by delaying non-essential capex, pushing energy-efficient models like inverter ACs, and focusing on high-margin products. Regional demand volatility forces players toward demand-responsive manufacturing and smarter inventory planning.
As climate unpredictability grows, the FMEG and FMCG sectors are embedding sustainability deeper into their operations. Leading players are advancing net-zero targets, investing in renewable energy, and strengthening recycling infrastructure.
India’s ESG regulatory landscape is also maturing. From SEBI’s BRSR reporting mandate to Extended Producer Responsibility (EPR) for electronic waste, companies are under pressure to improve disclosures, traceability, and compliance systems. The shift from box-ticking to impact-driven ESG performance is already underway, and early adopters stand to gain brand equity, investor trust, and operational resilience.
As we look ahead, consumer brands must realign around a few key imperatives. First, shift from price-led to volume-led recovery by reinvesting input cost gains into smart pricing resets. Second, rural markets require renewed focus through tailored products and micro-distribution. Third, premiumisation and sustainability must be embedded in product development and brand positioning. Finally, digital execution—across both e-commerce and Q-comm—will be a key growth lever, especially as consumer behaviour evolves across regions and income groups.
