FMCG firms remain unsure how to pass on benefits to consumers, with just 10 days left for the GST 2.0 rollout.
Industry bodies have raised concerns with the Finance Ministry, the Department of Consumer Affairs, and the CBIC.
Analysts warn that de-stocking may hit September sales and affect quarterly earnings.
With just 10 days to go before the government’s much-touted goods and services tax (GST) reforms go live, fast-moving consumer goods (FMCG) companies remain uncertain about how to pass on the expected benefits to consumers.
Industry representatives, through their associations, have written to multiple government bodies—including the Union Ministry of Finance, the Department of Consumer Affairs, and the Central Board of Indirect Taxes and Customs (CBIC)—flagging their concerns, according to reports.
The concerns centre on two key issues. First, how to pass on the benefit of rate cuts for low-value products priced at ₹5, ₹10, or ₹20. Second, if companies reduce GST on existing stocks, how they will be compensated for higher input taxes already paid on raw materials.
According to Vishal Punmiya, Lead Analyst (Consumer Staples & Discretionary) at Yes Securities, while companies may de-stock ahead of festive sales in October, the process could affect volumes in September and weigh on the ongoing second quarter.
Pain Points in GST Transition
FMCG firms told CBIC officials that cutting MRPs below fixed price points of ₹5, ₹10, and ₹20 is not practical, as reported by Moneycontrol. Instead of reducing a ₹20 biscuit pack to ₹18, companies plan to keep prices unchanged while passing on benefits through larger pack sizes or volumes. They argue that Indian consumers are accustomed to certain price points, and disturbing that structure could backfire.
The GST revamp on September 3 reduced rates on most consumer goods—cutting butter, cheese, and confectionery to 5% from 12%, and chocolates, biscuits, cornflakes, coffee, ice-cream, bottled water, hair oil, soaps, and toothpaste to 5% from 18%. However, some essentials such as detergents and cosmetics remain taxed at 18%.
While lower rates are expected to boost consumption, companies warn of “short-term disruption”. Emami Vice-Chairman Harsha Vardhan Agarwal told PTI that every company is still assessing the impact, while Godrej Consumer’s Sudhir Sitapati said consumers may only see reduced prices by early to mid-October. September, he noted, could be “somewhat choppy” as supply chains adjust.
Parle Products’ Mayank Shah also told PTI that clear government guidelines will be crucial for quick implementation. Punmiya added that FMCG players are unsure how the GST adjustments will affect their portfolios.
Complicating matters, a September 9 circular from the Department of Consumer Affairs directed manufacturers, packers, and importers to revise MRPs on unsold stocks in line with the new GST rates, applicable until December 31, 2025, or until such stock is cleared.
However, a Business Standard report noted that businesses cannot fully cut prices on unsold stock since they had already paid higher input taxes, which are not refundable under input tax credit (ITC). Experts warned this “double whammy” leaves companies stuck with higher tax-paid stock and limited relief. Officials indicated the finance ministry may explore measures to ease losses from the inverted duty structure.
Festive Demand Outlook
While the industry awaits broader government guidelines, experts expect some near-term impact before the festive season.
“The companies were already aware of rationalisation, so they likely prepared inventory plans in advance,” said a Yes Securities analyst, noting that technology has reduced inventory build-up at distribution levels. Unlike a decade ago, when 15–30 days of stock was held, inventory now typically turns over every 2–7 days. This, he said, could help firms manage benefits distribution once decisions are finalised.
Punmiya said he will closely watch developments between September 22, when the new GST regime begins, and the time revised MRPs appear in the market.
Kotak Institutional Equities, in a note on September 9, said it expects “a low impact on volumes and a modest impact on the profitability of consumer staples and retailing sectors.”
“Given variable demand elasticities across income levels—near zero for high-income households to close to 1 for low-income households—and strong competition across D2C, retail, regional, and traditional players, the overall impact is likely to remain contained,” the note added.
