GST Cuts Spark FMCG Volume Surge: Discretionary Spending Leads Recovery, but ‘Pantry Loading’ Concerns Loom

16 Dec 2025, 10:39 by Vinay Kakkad · KalingaTV

India’s Fast-Moving Consumer Goods (FMCG) sector is showing strong signs of a volume-led demand recovery, fueled by recent GST-linked price reductions and aggressive promotional activities, according to a new report by ICICI Bank.

The analysis highlights that while the overall demand environment is improving, the response has been uneven, with consumers showing a remarkably sharp reaction to price cuts in discretionary categories.

Discretionary Categories Show High Elasticity

The most significant takeaway from the report is the high price elasticity—currently greater than 1—in discretionary segments like beauty products, body lotions, and shampoos.

High Elasticity: A price elasticity greater than one means that a small percentage reduction in price is resulting in a larger percentage increase in sales volume. This suggests that consumers are readily increasing usage or upgrading to better products when prices drop, potentially unlocking pent-up demand.
Company Impact: This trend is particularly beneficial for major FMCG players like Hindustan Unilever (HUL), Procter & Gamble (P&G), and Dabur, who have extensive portfolios in personal care and beauty. Many of these companies swiftly implemented price cuts on products like shampoos and soaps after the GST rate on essential toiletries was reduced from 18% to 5%.

In contrast, staple categories like basic soaps, hair oils, and certain food items have seen more stable, though gradually improving, demand.

The Strategy: Volume via Value

FMCG companies are employing a multi-pronged strategy to capitalize on this price sensitivity:

Price Cuts on Large Packs: Price elasticity is noted to be higher in larger pack sizes, particularly on e-commerce and quick commerce platforms. Companies are focusing deeper price corrections and promotions here to encourage bulk purchases.
Grammage Increases: In mass-market categories such as biscuits, soaps, and mass-market shampoos, companies are boosting the grammage (quantity) in price-pointed packs to offer a better value proposition for the same price, thereby driving mass volume growth. This move is critical in attracting price-sensitive rural and semi-urban consumers.

Cautionary Note: The ‘Pantry Loading’ Effect

While the immediate sales figures look promising, the ICICI report urges caution regarding the sustainability of this momentum. The heavy discounting and lower effective prices may have led to significant ‘pantry loading’—where consumers stock up on goods for four to six months in advance.

Short-Term Gain, Future Risk: This behavior provides an immediate boost to current-quarter sales volume but could create a demand air pocket in subsequent quarters as consumers deplete their stocks before making new purchases.
Strategic Challenge: The sector will need to monitor consumption trends closely to distinguish genuine demand growth from temporary stocking. Companies must find a balance between promotional aggressiveness and maintaining pricing discipline to ensure long-term health and protect margins.

The recovery, driven by tax rationalization and value-focused strategies, clearly signals a potential turning point for the FMCG industry. However, the true test of sustained growth will come in the quarters following the initial stocking phase.