Reserve Bank Governor Sanjay Malhotra said that India’s urban consumption is gradually picking up, with an uptick in discretionary spending, while announcing the monetary policy decision to cut the repo rate by 25 basis points.
“On the demand side, bright prospects for the agriculture sector bode well for rural demand, which continues to be healthy, while urban consumption is gradually picking up with an uptick in discretionary spending,” Malhotra said, citing high-frequency indicators (HFIs) of urban consumption such as domestic air passenger traffic and the Index of Industrial Production (IIP) for consumer durables.
In its monetary policy report, the central bank noted that private final consumption expenditure (PFCE) revived and recorded a growth of 6.9% in Q3 of 2024-25, contributing 4.1 percentage points to overall GDP growth.
The report highlighted that domestic air travel rose by 11.4% in the third quarter and remained strong in January and February 2025. Passenger vehicle sales grew from October to February, recovering after a decline in the previous quarter. Consumer durables production also increased, growing by 9.1% in Q3 and 7.2% in January, indicating rising discretionary spending. Bank credit to households remained strong, growing in double digits, despite a slowdown in unsecured personal loans and credit card usage, the RBI said.
“Fast-Moving Consumer Goods (FMCG) sales volume growth showed improvement in Q3 and January–February 2025 in urban areas, although it continues to lag behind rural areas,” the report added.
The central bank noted that rural demand, supported by healthy crop production and improved reservoir levels, gained strength. FMCG sales volume growth in rural areas during Q3 and Jan-Feb 2025 continued to outpace that of urban regions.
“Private consumption in India shows strong co-movement with GDP and adjusts quickly in response to shocks. However, the pace of convergence has moderated in the post-COVID period compared to the pre-COVID era,” the RBI noted.
The RBI's forecast for a revival in private consumption comes on the backdrop of analysts’ expectations of a moderate pickup in volume sales for FMCG companies in Q4 FY25.
“Our coverage universe is set to report 7.2% year-on-year revenue growth and 4% volume growth in Q4 FY25E,” said Elara Securities in its report dated April 7.
Elara expects Varun Beverages, Mrs. Bectors, Tata Consumer Products, and Marico to post strong double-digit revenue growth, supported by summer demand and acquisitions. However, HUL is likely to report flat volumes due to weakness in its personal care and food segments. Dabur experienced weak sales in key categories during the last quarter of FY25. Godrej Consumer Products expects modest growth, led by home care, while Britannia may see mid-single-digit growth, aided by demand during the Kumbh Mela.
“For our coverage universe, we anticipate volume growth to range from low to mid-single digits, with pricing-led median sales growth of 5.8%—marginally better on a sequential basis but still not out of the woods amid an extended urban slowdown,” said Phillip Capital in its April 7 report.
The RBI has revised its FY25 real GDP growth forecast downward by 20 basis points to 6.5%, citing "the impact of global trade and policy uncertainties" for the lowered outlook.
