Cars, TVs over clothing, food: FMCG companies yet to see GST gains

Mumbai: It has been nearly three months since the new GST rates have kicked in but the fast-moving consumer goods (FMCG) sector is yet to see the full impact of the benefits of the tax cuts that drove down prices of a host of essentials.Consumers first rushed to buy durables and cars, where the cuts seemed more appealing given the higher price tags of the products, instead of adding more packs of biscuits and shampoos to their shopping bags. There have been some signs of demand revival, but the extent of the growth will be clear in the coming quarters, said industry executives. In FMCG, a part of the GST benefits (for small packs) has been passed on through grammage increases rather than direct price cuts in many other sectors.FMCG chiefs are divided over the ways in which the cuts will translate into demand. The broader consensus, however, is that the GST reductions should boost consumption as lower tax rates increase affordability, giving consumers more room to premiumise and move to branded products. “FMCG growth in the last 4-5 years have been puzzling for us. With Indian GDP at 7%-8%, one should see FMCG volume growth ahead of GDP growth, but it has been at 4%-5%.

One doesn’t know whether the impact of GST is short-term or long-term. The long-term impact will be clear in a few months but in the short-term, we have seen (demand) benefits in categories where reductions have happened,” Sudhir Sitapati, MD & CEO at Godrej Consumer Products and chairman, CII National Committee on FMCG told TOI.The immediate benefit of the GST cuts has gone to categories such as durables and auto, said Saugata Gupta, MD & CEO at Marico, the maker of Saffola oats and Parachute coconut oil.

“There the cut was substantial, something moving from 28% to 18%. And the significant outlay that was saved. For FMCG, the benefit will take time,” Gupta said at the CII FMCG summit here on Monday.Weak urban demand has been weighing on FMCG growth—high inflation in the past year nudged consumers in the cities to curb spending, especially in the low to mid-income segments, a key cohort for mass players such as HUL and Dabur. FMCG companies are betting on a mix of GST cuts, income tax benefits and low inflation to spruce up demand.