FMCG firms await guidelines as new GST triggers short-term disruption

New Delhi: Fast-moving consumer goods (FMCG) companies are waiting for government guidelines on the implementation of the revised goods and services tax (GST), with industry leaders cautioning of short-term disruption as existing stocks with higher MRPs remain in circulation.

The sector expects the reduced duties on FMCG products to lift consumption, but businesses are concerned about how to deal with inventory lying in warehouses and retail shelves under the current tax regime.

The industry has sought clarity on whether existing stock with the old MRP can continue to be sold at discounts after September 22, when the new GST structure comes into effect.

“Right now, everyone is evaluating what has to be done,” Emami Vice-Chairman and Managing Director Harsha Vardhan Agarwal told PTI. “We are also trying to get verification from the government on the matter. Obviously, we will also try as how quickly we can best deal with the changes on the MRP.”

Agarwal, who is also President of trade body Ficci, added that challenges would vary. “Challenges might differ from company to company,” he said. “At this point in time, we are evaluating the current scenario and the challenges in order to come up with a mitigation plan.”

Godrej Consumer Managing Director and CEO Sudhir Sitapati said consumers may see reduced prices only from early or mid-October. “Simply passing on money to trade does not guarantee that it reaches consumers directly. It will take a little time before new MRPs flow into the market,” he said, describing the shift as “some short-term disruptions” for the industry.

“September may, therefore, be somewhat choppy, with pipeline changes and stock adjustments, but this is temporary,” Sitapati added.

Parle Products Vice-President Mayank Shah said, “The industry bodies are already in discussion with the government. Depending on what guidelines are given, we would have to move immediately or give some time.” He noted that the nature of challenges differs, particularly between food products with short shelf lives and personal care items.

Retailers and manufacturers outside the FMCG sector are also preparing. V-Mart Retail Chairman and Managing Director Lalit Agarwal said, “The amount of GST reduced by the government will be reflected in the form of a discount on the final bill handed over to the consumer.”

Blue Star Managing Director B Thiagarajan explained that dealers would face temporary burdens. “For the existing stocks with the dealers, they will have a higher input tax credit at 28%, but they will start billing at 18% to customers. Therefore, they will carry an excess credit of 10%, and it will take 3 or 4 months for them to consume. This is not a financial loss, but a working capital burden. We have decided to ease the same by compensating them for the interest burden,” he said.

The GST Council last week approved a revised structure with two slabs, 5% and 18% replacing the earlier four rates of 5, 12, 18 and 28%. FMCG goods such as hair oil, soap, face powders, shampoos, toothbrushes, toothpaste and food items have moved into the 5% bracket, while room air-conditioners and televisions above 32 inches now fall under the 18% slab.