Over with GST transition pain, FMCG cos now eye a long-term recovery

Subscribe to enjoy similar stories. India's fast moving consumer goods (FMCG) sector majors faced a challenging quarter with the implementation of the goods and services tax (GST) rate cuts and the country's new labour codes being the key levers controlling the outcomes. GST 2.0 was expected to boost consumption, as consumers waited for price cuts to kick in from September.

The Street widely expected people to shift to premium products or from unbranded consumer goods to branded ones. While price cuts did boost sales of a few larger electronic products or cars, the wider consumer sector still awaits a trickle-down effect. India implemented major GST reforms just ahead of the quarter, cutting rates on over 375 items to boost consumption, with 90% of the items in the 28% tax slab moving to 18%, and most items with 12% going to 5%.

In the short-term, the tax rate cuts have brought more difficulties for consumer giants, than a helping hand. Revenue growth for FMCG companies ranged from a minimum of 2-6% to a higher end of 27% during the December quarter. Anil Kumar, chief executive officer of Redseer Strategy Consultants, said despite GST cuts, particularly on FMCG categories where rates moved from 18% to 5%, consumption has not meaningfully picked up, especially among middle class buyers.

The absolute savings were too small to materially change consumer behaviour, he explained. “There was a bit of disruption when GST rates changed," Sunil D’Souza, managing director and CEO of Tata Consumer Products, told Mint in an interview last month. “But I remain in the same camp that just because the GST rates changed in September-October doesn’t mean overnight demand is going to change, especially for staples and FMCG," he said.