FMCG Companies to Maintain Prices While Offering More Products: Understanding GST 2.0 Benefits

FMCG companies are set to reintroduce familiar price points for popular products like biscuits, shampoos, and bottled water by mid-November, following recent changes in GST regulations. This move aims to alleviate consumer frustration caused by awkward pricing adjustments after the GST rate cuts in September. With the new strategy, consumers can expect larger pack sizes at the same prices, enhancing value while adhering to the updated tax guidelines.

Bigger Sizes Instead of Lesser Prices

The recent GST rate cuts have led to a confusing pricing landscape for many fast-moving consumer goods (FMCG). For instance, a Rs 5 pack of Parle-G biscuits was reduced to Rs 4.45, while a Rs 2 shampoo sachet dropped to approximately Rs 1.77. These changes left consumers feeling dissatisfied. In response, the government clarified that FMCG companies could adjust their product weights instead of lowering prices. This clarification has allowed manufacturers to resume production with larger pack sizes, ranging from a 6% to 12% increase in quantity. Mayank Shah, vice president at Parle Products, confirmed that new packaging will soon hit the shelves, offering consumers more value at familiar price points. Snack production has already resumed, with biscuits expected to see an 11-12% increase in weight.

Popular Prices — A Win-Win for Both Consumers and Retailers

The initial GST cuts resulted in temporary price reductions for various products. For example, Mondelez adjusted the price of Bournvita from Rs 30 to Rs 26.69, and Bisleri reduced its 500 ml bottles from Rs 10 to Rs 9. Retailers often rounded off prices or provided small confectionery items as change, making transactions smoother. Tarun Arora, CEO of Zydus Wellness, emphasized that reverting to popular price points benefits both consumers and small retailers. He noted that these price points are easier to market and resonate well with consumers. As companies adapt to these changes, there may be new product launches at these attractive price points, reflecting the industry’s responsiveness to consumer needs.

Awaiting Official Clarification

In 2017, several FMCG companies faced penalties from the National Anti-Profiteering Authority for not passing on GST benefits to consumers. However, this time, government officials have assured that companies will not be penalized for reintroducing popular price points by increasing pack sizes. Dairy giant Amul is taking a cautious approach, with its managing director, Jayen Mehta, stating that they will adhere to the government’s intent to lower prices without compromising consumer benefits. Prashant Peres, managing director at Kellanova India, mentioned that the industry faced challenges due to inconvenient price tags. He indicated that while some immediate price reductions might occur, the long-term strategy will focus on increasing pack sizes to align with popular price points.

GST 2.0 Cuts and Benefits

The recent GST reforms represent a significant overhaul of India’s indirect tax system, aiming to simplify taxation and reduce the financial burden on citizens. The new two-slab structure of 5% and 18% replaces the previous four-tier system, while luxury goods will be taxed at 40%. These reforms significantly lower GST rates on essential household items, with the government emphasizing the importance of passing these benefits to consumers. Union Finance Minister Nirmala Sitharaman has highlighted ongoing efforts to ensure that the advantages of these reforms reach the common man, farmers, and small businesses. The government has also established a helpline and online portal for consumers to report instances where they do not receive the benefits of the rate cuts, reinforcing its commitment to consumer welfare.

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