Impact of FMCG GST Cut
Consumer goods companies are calling on the government to permit the sale of products with existing packaging at reduced prices when new Goods and Services Tax (GST) rates take effect on September 22. This request aims to prevent the wastage of packaging materials valued at over ₹2,000 crore. In letters sent to the finance ministry and the department of consumer affairs, industry representatives emphasized the significant inventory they hold, which could lead to substantial losses if not addressed.
Industry Concerns Over Packaging Waste
The consumer goods sector is facing a pressing issue as companies hold two to three months’ worth of inventory, amounting to millions of items. With the impending GST changes, which will see tax reductions on many consumer goods, manufacturers are concerned about the financial implications of unsold products packaged with outdated pricing. In their correspondence with government officials, companies proposed that they be allowed to sell these items at lower prices to mitigate potential losses. They suggested that consumers be informed of the new pricing through various channels, including advertisements, updates on websites, and notices from distributors.
One letter highlighted the problem of pre-printed packaging materials, stating, “The majority of the packaging materials are pre-printed with the prevailing MRP. In order to avoid colossal waste…manufacturers should be allowed to exhaust pre-printed material with existing MRP.” Despite these appeals, industry executives reported that they have yet to receive a response from the government regarding their requests.
Impact of GST Changes on Consumer Goods
The recent overhaul of the GST has resulted in significant tax cuts for many consumer goods. For instance, the tax on butter, cheese, and confectionery has been reduced from 12% to 5%. Similarly, items such as chocolates, biscuits, cornflakes, coffee, ice cream, bottled water, hair oil, soaps, and toothpaste will now be taxed at 5%, down from 18%. Mayank Shah, vice-president at Parle Products, expressed the company’s intention to pass on these tax benefits to consumers through lower prices. However, he also noted the challenges of implementing these changes efficiently without incurring waste.
Amul, another major player in the industry, echoed these concerns, stating that it would be difficult for retailers to immediately reflect the benefits of the tax cuts at the consumer level. The dairy brand plans to promote the reduced prices and offer discounts to ensure that consumers benefit from older stock as well.
Proposed Solutions for Pricing Transparency
To enhance billing simplicity and maintain transparency, companies are advocating for the reintroduction of rounding off Maximum Retail Prices (MRPs) to the nearest rupee or 50 paise. They also seek recognition of promotional offers, such as “buy one-get one” deals or increased product grammage, as valid methods to pass on tax cuts to consumers. Packaging costs typically account for 10-15% of the total product cost, depending on the category and brand.
While many fast-moving consumer goods (FMCG) products have moved to the 5% GST slab, essential items like detergents and certain cosmetics remain at 18%. This discrepancy raises concerns among industry players, who fear that it could hinder overall sales. Experts suggest that the rate cuts on personal care and consumer goods could increase disposable incomes, indirectly benefiting discretionary categories like cosmetics and home care.
Future Strategies for Consumer Brands
As the industry navigates these changes, brands are expected to capitalize on the opportunity by offering value-driven products, smaller pack sizes, and targeted outreach in emerging consumption markets. The focus will likely be on adapting to the new pricing landscape while minimizing waste and maximizing consumer engagement. With the GST changes set to take effect soon, the response from the government and the subsequent actions of consumer goods companies will be closely monitored by industry stakeholders.
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