Indian Finance Minister Nirmala Sitharaman has announced significant reforms to the Goods and Services Tax (GST) structure, aiming to ease the burden on common citizens and boost demand. The reforms include slashing GST rates on various fast-moving consumer goods (FMCG) items, such as shampoo, toothpaste, soaps, and hair oil, from 18% to 5%. Additionally, items like bread, paneer, and ultra-high temperature (UHT) processed milk have been exempt from GST.
This move is expected to have a positive impact on the economy, particularly in the FMCG sector. Industry players, including companies like Godrej Consumers, HUL, Marico, Colgate, DMart, Nestle, and Britannia, are likely to benefit from the reduced tax rates. These companies’ stocks are expected to be in focus, with some already rallying for four consecutive sessions.
The reduction in GST rates is also expected to make commonly consumed items more affordable, benefiting end-consumers, particularly in price-sensitive rural and semi-urban areas. Dairy products, including ghee, butter, and cheese, which were earlier taxed at 12%, have been moved to the 5% slab. Ethnic snacks like namkeens, bhujia, and mixtures will also fall under the 5% category.
The reforms have been welcomed by industry players, who believe that the move will help increase consumption of branded and quality-assured products, potentially encouraging a shift away from unregulated or adulterated alternatives. The Association of Indian Consumers and Distributors (AICPDF) expects the move to accelerate FMCG growth by 2-3 percentage points.
FMCG major Dabur also expects the shift to strengthen demand, particularly in rural and semi-urban markets, as the festival season approaches. The company believes that the reforms will energize demand, ease the burden on households, and catalyze growth for branded FMCG products.
Overall, the GST reforms are expected to have a positive impact on the FMCG sector, with companies like HUL, Nestle, and Dabur likely to benefit from the reduced tax rates. The reforms are also expected to boost consumption, ease pressures on trade, and strengthen the supply chain from manufacturers to the last-mile retailer.