FMCG Industry Ask For Continued Govt Support; Expects Tax Incentive

Ahead of the Union Budget 2026, FMCG industry players are expecting a growth-oriented Budget with a balanced fiscal discipline. The year 2025 reaffirmed the underlying strength of India’s consumption story while exposing the temporary headwinds that will inevitably arise. The sector enters 2026 with supportive tailwinds and hard-won clarity on where to deploy capital.

While the government’s strong support on the GST front has been welcomed, policy push towards strengthening cold-chain infrastructure and logistics is a critical demand that needs attention.

The dairy sector is a cornerstone of India’s food security and rural economy, directly supporting millions of farmers and allied livelihoods. “Union Budget 2026 presents a timely opportunity to accelerate the next phase of growth for this vital sector. We welcome the government’s continued support on the GST front and believe there is scope for further rationalisation of key inputs such as packaging material, refrigeration equipment, animal feed and veterinary services. This would go a long way in easing rising cost pressures and improving overall efficiency across the value chain,” said Dr. K. Rathnam, Whole Time Director & CEO, Milky Mist Dairy Food Limited.

“From an industry standpoint, incentives for value-added dairy products, automation, advanced quality-testing laboratories and sustainability initiatives will encourage private players to invest in modern, scalable capacity aligned with global standards. Overall, a balanced and forward-looking Budget that strengthens farmer incomes, upgrades infrastructure and enables organised dairy players to scale sustainably will create long-term value for the sector and reinforce India’s position as one of the world’s leading dairy economies,” he added.

India’s retail and consumer sector is undergoing rapid transformation, driven by strong domestic consumption, digital adoption, premiumisation and e-commerce growth. According to a Deloitte report, valued at US$1.06 trillion in 2024 and projected to nearly double to $1.93 trillion by 2030 at a 10 percent CAGR, the sector benefits from a resilient home market and evolving trade agreements that enhance export competitiveness.

While GST rationalization has helped, large mass-consumption FMCG categories, especially in home care, are still taxed at 18 per cent.

“Our main expectation from the Budget is efficient measures to boost consumption, particularly through further rationalisation of GST. There are a few large, mass-consumption FMCG categories, especially in home care, that continue to be taxed at 18 per cent and could logically move to a lower slab such as five per cent to support demand. We also believe that higher allocations for infrastructure linked to labour- and water-intensive categories should be released in a timely manner. That said, the sector has already seen significant stimulus over the past year, and continued focus on consumption will help sustain growth,” said Sudhir Sitapati, MD and CEO, Godrej Consumer Products Limited (GCPL).

Consumer demand for healthier and eco-friendly products is rising, but affordability remains a challenge due to high production costs and a lack of targeted tax support. India’s heavy reliance on Palm oil and conventional packaging materials poses environmental and health risks. By incentivising R&D and sustainable practices, the government can reduce import dependency, foster innovation and position India as a leader in responsible FMCG manufacturing.

Introducing targeted tax incentives to encourage innovation in health-focused and ecofriendly FMCG products will be beneficial to boost consumption.

“Offering weighted tax deductions under Section 35(2AB) in addition to the actual expenditure incurred for R&D in low-sugar formulations, alternative oils and biodegradable packaging solutions. Additionally, provide tax holidays for companies launching new product lines that prioritise health and sustainability, and extend incentives for R&D in renewable energy adoption within packaging processes. These measures will accelerate product reformulation and packaging innovation, making healthier and sustainable products more affordable and accessible. Furthermore, these initiatives will strengthen India’s global competitiveness in FMCG exports by aligning with international sustainability standards,” said Anand Ramanathan, partner, FMCG, Dellotte.

Lower retail prices will boost consumption, improve public health outcomes and create new rural employment opportunities through alternative oilseed sourcing and green packaging manufacturing. India’s consumer sector is on a strong growth trajectory, supported by GST 2.0 reforms that simplify compliance, reduce costs and enable competitive pricing, fostering a transparent and efficient marketplace.

However, weak rural logistics and inadequate cold chain infrastructure continue to restrict the reach of FMCG products across India’s hinterlands. “Logistics costs remain high at approximately 14 percent of GDP compared with the global average of 8–9 percent, and rural storage facilities are often insufficient. To address these challenges, it is recommended to create a dedicated Rural FMCG Infrastructure Fund under the PM GatiShakti initiative. Additionally, providing Viability Gap Funding for rural cold chain development and integrating logistics infrastructure with BharatNet to enable real-time inventory tracking and route optimisation through digital connectivity can significantly improve last-mile connectivity,” said Anand Ramanathan.

Rising purchasing power, including Gen Z’s US$250 billion spending capacity, is sustaining demand while enabling brands to scale globally. This convergence positions India as both a consumption powerhouse and a formidable export base.