The Indian government’s decision to reduce the Goods and Services Tax (GST) rates on various fast-moving consumer goods (FMCG) products is expected to cause short-term disruptions in the industry. Companies such as Emami, Godrej Consumer Products, and Hindustan Unilever are waiting for implementation guidelines from the government to deal with their existing inventory. The new GST regime, which comes into effect on September 22, will have two slabs of 5% and 18%, replacing the current four slabs of 5, 12, 18, and 28%.
FMCG companies are seeking clarification on how to handle existing stocks with printed Maximum Retail Prices (MRPs) under the current tax regime. They want to know if they can sell these stocks with discounts even after the new GST regime comes into force. Emami Vice Chairman and Managing Director Harsha Vardhan Agarwal said that the industry is evaluating the situation and waiting for verification from the government. Godrej Consumer Managing Director and CEO Sudhir Sitapati said that consumers will start getting FMCG products at reduced prices only by early or mid-next month, as goods take time to reach markets with the new MRPs.
The reduction of tariff to 5% is expected to cause some short-term disruptions for the FMCG industry, as dealers and companies are sitting on stocks with high MRPs. Simply passing on the reduced tax to trade does not guarantee that it reaches consumers directly. It will take some time before new MRPs flow into the market. Parle Products Vice President Mayank Shah said that the FMCG industry is waiting for implementation guidelines and that different companies will have different challenges depending on their products and shelf life.
Some companies, such as V-Mart and Blue Star, have already announced their plans to extend the benefit of the reduced GST to consumers. V-Mart will provide a discount on the final bill of consumers, while Blue Star will extend the benefit from September 22. The company has already started work on MRP labels and other administrative procedures. Overall, the reduction of GST rates is expected to boost consumer spending, but the industry is facing short-term challenges in implementing the changes.