GST relief to boost consumer spending, lift FMCG sector's growth

Mint

a day ago

Mumbai: Prime Minister Narendra Modi's Independence Day announcement of long-awaited Goods and Services Tax (GST) reforms has raised hopes of consumer goods becoming cheaper, giving relief to households and packaged goods makers.
There is a proposal to retain two major GST rates going ahead, eliminating the 12% and 28% slabs. Most of the products and services that currently attract a tax rate of 12% and 28% will be shifted to the 5% and 18% slabs, respectively. A few remaining items in the 28% bracket, currently the highest, will be moved to a new 40% slab, Mint reported earlier. This new slab will cover only a few 'sin goods' such as tobacco products, pan masala, and luxury cars.
'We expect the demand outlook for the FMCG sector to improve, supported by the Central government's focus on accelerating consumption in the economy," analysts at Emkay Securities said in a note dated 17 August. 'The government is now aiming to reduce the indirect tax burden by simplifying the Goods and Services Tax (GST) structure."
The move will aid both consumers and producers, said Jayen Mehta, managing director at the Gujarat Co-operative Milk Marketing Federation Ltd, which markets dairy products under the AMul brand.
'This will benefit farmers. While products such as curd are already taxed at 5%, products like ghee, butter, ice cream, and cheese will move down to the 5% slab," he said. Both ghee and butter currently attract a 12% tax.
'Ghee, in particular, is a very important product after milk. However, high tax rates have kept consumption restricted to the unorganized sector. The lower GST will help change that and give consumers access to better quality and branded ghee," he said.
Overall, Mehta said the move would boost consumption and benefit local producers.
Analysts at Emkay Securities said the move is likely to have limited price benefits for categories such as home and personal care due to their predominant classification under the 5% and 18% slabs. In contrast, food and beverage companies may see direct benefits from a decrease in rates.
Food and beverages have varied products across the 5%, 12%, and 18% slabs.
Many products currently in the 12% slab—ghee, savouries, bottled water, butter, cheese, paneer, juice, instant noodles, pasta, Chyawanprash, soya chunks, and wafers—are likely to see a reduction to the 5% slab, in our view, analysts said.
"If the tax rate reduces to 5%, Bikaji (approx. 80% of revenue) and Gopal Snacks (approx. 85% of revenue) are likely to benefit; Nestlé will see a tax reduction in approximately 30% of its portfolio (instant noodles, pasta, and ketchup)," per the report.
'Further, Dabur will see a partial benefit in beverages and Chyawanprash, which make up approximately 23% of its India revenue. ITC's 11% revenue in the 'other FMCG' segment (noodles, juice, and dairy) may benefit. Britannia's dairy and wafers portfolio would benefit, which is less than 5% of its India revenue. Marico and HUL are likely to benefit, although their share of revenue is limited."
Home and personal care
In the home and personal care segment, most products are currently taxed at 18% GST. Exceptions include hand wash and toothbrushes (5%, likely to remain), sanitary pads (nil), baby care (12%, potentially moving to 5%), and mouthwash (12%, possibly moving to 18%). As such, direct benefits for for the category are expected to be minimal.
Modi, in his speech, said the central government is working with states to reform GST and bring significant relief to people. 'In this Deepavali, you will be getting a double Deepavali," he said.
'Any step towards a more simplified and rational GST structure will provide much-needed relief to the FMCG sector, particularly for companies like ours in the packaged foods and snacks space where margins are under pressure," Manish Aggarwal, Director, Bikano, Bikanervala Foods Pvt Ltd. said.
A predictable and streamlined tax regime not only eases compliance but also helps us pass on benefits to consumers, ensuring better affordability and growth of the category, Aggarwal added.
However, the industry is awaiting further clarity on the revised rates.
India's FMCG sector reported 13.9% growth in the June quarter, up from 3.3% in Q1FY25 driven primarily by price growth in food products. Volume growth remained steady at 6% year-on-year.
'The rationalization of GST rates could provide a strong tailwind to the FMCG sector. A large share of items currently in the 12% slab—milk-based products, dry fruits, processed and frozen foods, and daily-use essentials—are expected to shift into the 5% bracket. This reduction will improve affordability, lift consumption, and help an industry that has been struggling with a prolonged demand slowdown," said said Manoj Mishra, partner and tax controversy management leader, Grant Thornton Bharat.
Mishra said the move, coming ahead of the festive season, is crucial and may translate into stronger volumes, better consumer sentiment, and a measurable push to overall economic growth.