GST Cuts May Not Significantly Boost Urban Festive Spending: Ambit Report 

GST Cuts May Not Significantly Boost Urban Festive Spending: Ambit Report

A report by Ambit suggests that festive season spending this year is expected to be subdued in urban regions and may not receive a substantial boost from the recent GST rate cuts.

Reasons for Sluggish Urban Demand

• Stagnant Disposable Income: The primary reason for the expected slowdown in urban consumption, despite the tax cuts, is low wage growth and stagnant disposable income in the formal job market. Ambit states that widespread stagnation has limited the ability of most urban households to increase spending.
• Limited Impact on Low-Ticket Items: The report finds that the GST rate cut benefits are more visible for higher-ticket items (like automobiles, electronics, and jewelry) but may not result in an incremental increase in consumption for low-ticket FMCG products during the festive season.
• Brand Substitution: Instead of increasing overall consumption, the GST cuts may primarily lead to consumers substituting one brand for another or shifting to higher-priced variants, limiting the growth in total volume sold.

Rural Market Outperformance

• The Ambit report anticipates that the rural market and Tier 2/Tier 3 cities are expected to outpace urban metro regions in consumption growth.
• This is attributed to differences in wage growth projections, with compensation in Tier 2 and Tier 3 cities expected to see significantly higher increases (18% and 22%, respectively, in CY25) compared to Tier 1 cities (12-15%).