Mumbai: India's fast-moving consumer goods (FMCG) sector is expected to post slower volume growth in FY27 as war-induced inflation spike pushes up crude oil-linked input costs and weighs on consumer demand. This is likely to force companies to give up on their volume-led growth strategy for this year and focus instead on protecting margins through calibrated price hikes and shrinkflation.
Analysts at credit rating agency Crisil said in a report last week that the 74 FMCG players they track, representing about one-third of the industry, are expected to post 2-3% volume growth in FY27, down from 5-6% in FY26. Their revenue is, however, seen up 8-10% this fiscal year, mostly because companies are likely to raise prices 6-7% as they partially pass on the increase in input prices to customers.
Crude oil and linked inputs, such as plastic packaging, are getting costlier due to the disruptions out of the ongoing West Asia war.
Large listed FMCG firms such as Hindustan Unilever Ltd, Britannia Industries and Dabur India, have started hiking prices of select products across portfolios.
The situation has turned FMCG companies’ FY27 business plan on its head.
Before the war hit
Earlier this year, the companies had said volume-led growth, one that shows rising consumption, will be priority as the industry was seeing demand grow following the goods and services tax (GST) rate cuts on packaged food and other items in September 2025. Moreover, inflation was low, with the retail print at 0.25% in October 2025 and food inflation down to -5.02% on favourable weather conditions, robust crop supply, and the impact of GST rationalization.
During October-December, segments tracked by consumer intelligence company NIQ, including food, home care, personal care and wellness, had seen volumes grow 1.9-3.2% year-on-year as companies implemented price cuts after GST rationalization. This development made companies aspire for volume-led growth.
“We crafted sharper priorities with a clear focus on volume-led growth,” said Priya Nair, chief executive officer of Hindustan Unilever Ltd. (HUL) in April, during the quarterly analyst call. HUL reported an underlying volume growth of 6% in Q4 FY26, marking its highest volume expansion in 15 quarters.
Other large players reported similar growth. Dabur India Ltd's FMCG business reported an underlying volume growth of 6%, its highest in over 18 quarters.
Marico Ltd’s India business reported an 8% volume growth, marking a 7-year high in Q4 FY26. In the same period, Nestlé India reported its strongest quarterly growth in nearly a decade, driven by double-digit volume growth.
Inflation pain
But then, war-induced inflation started to bite. “With inflation picking up in India business, we expect a part value growth through price increases to come in along with the volume growth that we have pencilled [in],” said Mohit Malhotra, global chief executive officer of Dabur India, in the May investor call.
Marico too voiced concern over inflationary pressures. “We have thoughtfully built in higher crude assumptions for the rest of the year,” Saugata Gupta, managing director and chief executive officer of Marico, told Mint in an interview earlier this month. “While it will soften if there is a resolution to the West Asia conflict, it will not be at the same level as last year.”
The sector's priority now will be to protect its margins as inflation rises and demand suffers.
Latest data shows India’s consumer price index (CPI)-based inflation rate peaked at 3.48% in April. The wholesale price index (WPI)-based inflation rate saw a sharper surge, hitting a 42-month high of 8.3% during the month due to rising global commodity and energy costs.
There is worry on the rural demand front as well. Rural consumption is expected to slow down this year, as the India Meteorological Department has predicted below-normal rainfall and drought-like conditions amid a likely super El-Niño phenomenon that reduces the crucial monsoon rains. This would hit farm output and, in turn, affect consumption.
Pressure on margins
These factors have spiked worry regarding FMCG firms' earnings before interest, taxes, depreciation, and amortization (Ebitda) margins for the year.
The Crisil report notes that the sector companies tracked by it face a 150–200 basis points fall in their Ebitda margins this fiscal year from around 19% in FY26. Gross margins of organized FMCG players will decline by 300-350 bps, it said.
Companies are, therefore, rethinking their strategy. "Companies will protect their margins by reducing selling and marketing expenses,” Aditya Jhaver, director at Crisil Ratings, told Mint. “With a partial pass-through of the costs to customers, the moderation in margin will not be significant. There is a risk of downtrading in a few segments for consumers with constrained household budgets,” he added.
The FMCG sector faced a similar squeeze during the Russia-Ukraine war in 2022, when oil prices surged above $100 per barrel, sharply raising packaging, logistics and other input costs. Companies were then forced to take price hikes to protect margins even as volume growth remained weak, delaying the sector’s recovery in demand.
Since the US-Iran war broke out end February, Brent crude prices have surged from the low-$60s a barrel to above $100 for extended periods, with prices remaining highly volatile amid disruptions around the choked Strait of Hormuz, a crucial route for energy shipments, and fluctuating peace talks.