Commodity prices have cooled since then, but not evenly. Anaemic rural demand that makes up a big chunk of sales have remained a drag. The big FMCG companies are testing the limits of their pricing power as their capacity to control raw material costs dissipates. Smaller players are gaining from a rising consumer preference for less expensive options.
Consumption expenditure has been slowing down sequentially over the quarters as India’s post-pandemic recovery loses steam. Consumer non-durables are a relatively stable component of overall consumption but are being outpaced by sales of cars and mobile handsets because of the severe contraction in consumer durables during the Covid lockdowns.
Services, too, are diverting consumption expenditure. But the principal cause remains subdued demand because of persistent inflation, which affects FMCG sales by propping up input prices. Weather events such as unseasonal rain and likelihood of a patchy monsoon also affect both sides of the demand-supply equation.
Policymakers have chosen to nurse India’s economic recovery through a mix of capital investment and a measured monetary response to inflation. The public investment push is yet to translate into higher disposable income growth that could feed a consumption boom even as core inflation remains stubbornly high with interest rate movements calibrated for a soft landing.
Unless wages in the informal economy, rural and urban, align themselves closer to nominal GDP growth, India’s domestic consumption story could run into headwinds. The spell in the slow lane for FMCG sales should call policy attention to languishing purchasing power and the nature of India’s economic recovery.
