How FMCG firms plan to benefit customers after GST cut
What's the story
Consumer goods firms have told officials of the Central Board of Indirect Taxes and Customs (CBIC) that they cannot reduce the maximum retail prices (MRPs) for low-value products in line with GST cuts. The companies argue that further price cuts would make transactions inconvenient for consumers. Instead, they have proposed increasing the pack size as an alternative solution.
Market resistance
Lowering MRPs won't work in India
Manufacturers of biscuits, soaps, and toothpaste priced at ₹5, ₹10 and ₹20 have said that lowering MRPs below these price points won't work in India. For instance, a biscuit pack that was earlier priced at ₹20 with 18% GST will now see a reduction in GST to 5% after September 22. This would bring down the MRP to around ₹17.80 or even lower.
Alternative strategy
We don't want to disturb this structure: FMCG executive
An anonymous senior executive from an FMCG company told Moneycontrol, "The Indian consumer is used to demanding products of the price band - ₹5, ₹10, and ₹20. We don't want to disturb this structure." Another company executive suggested that they could increase the volume of packaged items proportionally while keeping prices unchanged. For instance, a biscuit pack priced at ₹20 could be made larger without changing its price.
Plan implementation
Bikaji Foods, Dabur assure consumers will benefit from GST cuts
Bikaji Foods International CFO Rishabh Jain told Moneycontrol that after the new rates, the firm will do "grammage increase" in "impulse packs" to fully pass on GST benefits to consumers. Dabur India CEO Mohit Malhotra also assured that firms would definitely pass on the GST rate cut benefits to consumers as it would lead to an increase in consumption.
Regulatory measures
Guidelines for products coming soon
Officials in the Finance Ministry have said that the Centre is considering issuing guidelines for such products in the coming days. This is to ensure that there isn't any "unintentional-profiteering" by FMCG companies. The 56th GST Council recently approved an overhaul of the indirect tax system, simplifying it into a "simple tax" with an 18% standard rate and a 5% merit rate.
Potential introduction
No mechanism to check profiteering by companies yet
Currently, there is no formal way in place to check profiteering by companies. However, the government is open to the idea of introducing one if it feels firms are not passing on rate cut benefits to consumers. Namit Purit, the Managing Director & Senior Partner at BCG, expects that overall price movements will be modest as the FMCG companies are more likely to adjust pack sizes at popular price points, rather than sharply cut or raise sticker prices.