Union Budget 2025 is all set to be revealed with a plethora of promises but prices of everyday essentials such as soaps, toothpaste, cooking oil, tea, coffee, and fruit juices are likely to go up in the coming months, which could be a blow to household budgets. Leading Fast-Moving Consumer Goods (FMCG) companies, including Hindustan Unilever, Godrej Consumer Products, and Dabur, have hinted at a fresh round of price increases, citing rising raw material costs, supply chain disruptions, and shrinking profit margins. It also comes at the time when demand by consumers especially in the cities remains sluggish while both companies and consumers are grappling with various constraints.
Why Prices are Increasing for Everyday Essentials in Union Budget 2025?
The FMCG industry is a problem. Costs have gone up owing to global supply chain disruptions and geopolitical tensions, which have worsened the situation against the backdrop of climate-related uncertainties. The pressure of maintaining profit margins lies on companies at a time when demand is becoming weaker in urban markets that constitute 60% of FMCG consumption revenue.
To cope, many companies have already resorted to shrinkflation—reducing pack sizes while keeping prices unchanged—or implemented 3-5% price hikes in 2024. Experts predict that prices will continue to rise gradually in 2025, affecting mainly soaps, hair oils, chocolates, and biscuits.
Impact on Consumers and Economy
The price increases will come at a time when the middle class already faces high inflation and stagnant growth in wages. Rising costs for daily essentials can force households to cut back on discretionary spending, switch to cheaper alternatives, or opt for smaller pack sizes. This shift in consumer behavior would further dampen demand, setting up a vicious cycle for the FMCG sector.
This is worrisome, given that consumer spending accounts for 55-60% of India’s GDP. A demand slowdown can have spillover effects on the economy as a whole, particularly if rural consumption, which has begun to pick up, cannot offset the urban slowdown.
What’s Next?
Some respite is expected to arrive by March-April 2025, though there will be good crop output and a likelihood of tempering with inflation. The near future will look pretty tough. The government may assume an important role in softening the impact on the consumer by adopting some measures in Budget 2025-26.
It’s suggested that tweaking the income tax structure could generate more disposable incomes, improving social scheme allocations including MNREGA and PM-KISAN; the urban employment guarantee programs shall also be instituted. Reductions in GST levels and import taxes on raw material shall help curb the cost of production for the FMCG business.
A Call to Action
While FMCG companies gear up for the next round of price increases, the government faces a double-edged sword challenge in controlling inflation while at the same time spurring consumer demand. The policy intervention could give much-needed respite in the months ahead. However, until then, consumers are in for a tough ride as the price of their everyday needs continues to increase.
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