Festive spending is expected to slow down this year due to low wage growth and subdued consumption in urban regions. According to an Ambit report, the GST cuts may also not increase overall demand during the season due to increased brand substitution and other related factors.
GST cut effect remains limited
According to the Ambit report, the GST rate cut would be more visible for higher-ticket items, such as automobiles, electronics, and jewellery, and would also lead to higher purchases in these categories. On the other hand, low-ticket items, primarily FMCG products, may not see an incremental increase in consumption during the festive season due to GST cuts. Ambit says that so far, FMCG companies and retailers have mentioned sluggish sales.
The Ambit report suggests that despite revisions to income tax and GST rates, spending is not increasing due to stagnant disposable income. The report states that widespread stagnation in the formal job market has limited the ability of most households to spend, regardless of the recent GST price cuts.
The reports stated that last year, the festive season business recorded a 21% YoY growth. The total spending during the festive season in 2024 was Rs 4.3 trillion. The largest spending growth was observed in urban areas, such as Delhi.
Rural to outpace urban demand
The report suggests that the rural market is expected to outperform the urban metro regions in consumption growth in the current festive season. Further, the tier 2 and tier 3 cities are expected to see a comparatively more robust demand growth.
The key reason behind urban, Tier 2, and Tier 3 cities outpacing metro consumption growth is the wage increment differences, says Ambit. The compensation in Tier 2 and Tier 3 cities is expected to grow by 18% and 22%, respectively, in CY25. However, the compensation in Tier 1 cities is expected to grow by 12-15 per cent during the same period.