As the Union Budget 2026 approaches, India’s fast-moving consumer goods (FMCG) industry is calling for sustained policy support to maintain consumption-led growth while preserving fiscal discipline. Industry leaders and analysts note that while the sector benefited from significant stimulus over the past year, targeted interventions remain essential to unlock the next phase of expansion.
The year 2025 reaffirmed the resilience of India’s consumption story, even as temporary headwinds highlighted structural gaps in logistics, taxation and rural infrastructure. Entering 2026, FMCG companies see clearer priorities for capital deployment, particularly in value-added food segments, digital distribution and sustainability-led innovation.
Dairy Sector at the Centre of Policy Expectations
The dairy industry has emerged as a focal point in pre-Budget expectations. As a cornerstone of India’s food security and rural economy, dairy directly supports millions of farmers and allied livelihoods while feeding into the broader FMCG value chain.
Industry leaders have welcomed government support on the GST front but argue that further rationalisation is needed. Inputs such as packaging materials, refrigeration equipment, animal feed and veterinary services continue to face cost pressures.
According to Dr K Rathnam, Whole Time Director and CEO of Milky Mist Dairy Food Limited, the Union Budget 2026 offers an opportunity to accelerate dairy sector growth. He emphasised that rationalising GST on key inputs would ease rising costs and improve efficiency across the value chain. He also highlighted the need for incentives to promote value-added dairy products, automation, advanced quality testing and sustainability initiatives, which would help organised players scale in line with global standards.
Consumption Push and GST Rationalisation
Across the FMCG sector, consumption remains the central theme. While GST reforms have simplified compliance, large mass-consumption categories, particularly in home care, continue to attract an 18 per cent tax rate.
Sudhir Sitapati, MD and CEO of Godrej Consumer Products Limited, said the industry expects further GST rationalisation to boost demand. He pointed out that certain high-volume categories could logically move to a lower tax slab, such as five per cent. He also stressed the importance of timely infrastructure spending, especially in labour- and water-intensive segments, while acknowledging that recent stimulus has already supported growth momentum.
Scale and Growth of India’s Consumer Market
India’s retail and consumer sector continues to expand rapidly, driven by domestic consumption, premiumisation, digital adoption and e-commerce. According to a Deloitte report, the sector was valued at US$1.06 trillion in 2024 and is projected to reach US$1.93 trillion by 2030, growing at a compound annual rate of 10 per cent.
This growth is supported by a resilient domestic market and evolving trade agreements that enhance export competitiveness. For dairy and food FMCG players, this creates opportunities to scale both locally and globally.
Sustainability, Health and Innovation Incentives
Consumer demand for healthier and environmentally responsible products is rising. However, high production costs and limited tax support restrict affordability. Industry experts note India’s heavy reliance on palm oil and conventional packaging as long-term risks to health and sustainability.
To address this, the industry is seeking targeted tax incentives for research and development. Anand Ramanathan, Partner, FMCG at Deloitte, suggested weighted tax deductions for R&D in low-sugar formulations, alternative oils and biodegradable packaging. He also recommended tax holidays for companies launching health- and sustainability-focused product lines, along with incentives for renewable energy use in packaging processes.
Such measures, he argued, would accelerate innovation, reduce import dependence and improve India’s competitiveness in global FMCG exports.
Infrastructure Gaps and Rural Reach
Despite strong demand, weak rural logistics and inadequate cold chain infrastructure continue to limit FMCG penetration in hinterland markets. Logistics costs in India remain high at around 14 per cent of GDP, compared with a global average of 8–9 per cent.
Experts have proposed the creation of a dedicated Rural FMCG Infrastructure Fund under the PM GatiShakti initiative. Viability Gap Funding for rural cold chains and integration with BharatNet for digital inventory tracking could significantly improve last-mile connectivity. For dairy products, improved cold storage and transport are critical to reducing wastage and expanding rural and semi-urban consumption.
Outlook for 2026
With rising purchasing power, including strong spending capacity among younger consumers, India is well positioned as both a consumption powerhouse and an export hub. For the FMCG and dairy sectors, a balanced and forward-looking Union Budget 2026—focused on GST rationalisation, infrastructure, innovation and sustainability could reinforce long-term growth and strengthen India’s standing in the global food economy.
