FMCG Players Committed To Pass On GST Benefits To Consumers: CII's Sudhir Sitapati

The government’s recent overhaul of the Goods and Services Tax (GST) is going to boost consumption and the FMCG industry players are committed to passing on the benefits to the end consumer, according to Sudhir Sitapati, Chairman of the CII National Committee on FMCG, and Managing Director (MD) and CEO of Godrej Consumer Products Ltd. (GCPL).

The middle-class and lower-middle-class buyers are set to gain the most from the transfer of benefits by the Fast-Moving Consumer Goods (FMCG) manufacturers. However, in the FMCG space, it could take four to five weeks for the new prices to be reflected on shelves. This is due to the Maximum Retail Price (MRP) regime in the FMCG sector.

“You must remember that FMCG operates in an MRP regime. So, MRP does take a little bit of time for these benefits to flow through. So, it may take four weeks or five weeks. But I think everybody in the FMCG CII committee is committed to passing on these benefits to consumers,” he said during a conversation with NDTV Profit on Monday.

The changes in GST rates, announced by the government last week, will come into effect from Sept. 22.

“I think, as a consumer goods sector, this is really delightful news for us. I think this will spur consumption, not just in the categories in which GST is being reduced, but because it will have a generally good income effect on middle-class and lower-middle-class consumers. There will be a general boom in consumption,” he added.

Sitapati reiterated the commitment of the FMCG industry stakeholders to pass on the financial benefits to the end consumer. "All our members have committed that as soon as possible, they will pass on the benefits," he underlined. 

“The changes in GST are broad-based. I think both for the upper middle-class and for the middle-class and the poor, there's quite a lot in it. For example, in the FMCG sector, in the home and personal care part of it, the reduction in essentials, toothpaste, soaps, shampoos and stationery, I think they will benefit the poorest of the poor,” the top executive emphasised.

The shift from 28% to 18% GST on certain goods will support the middle class, he said. “I think this will be a broad-based benefit to both urban and rural.”

The reforms are also expected to create a more level playing field within the sector. Sitapati outlined that established, tax-compliant companies will become more competitive against smaller, regional players who may not be part of the GST net.

“There is a large part or some part of consumption which is done by a lot of small companies that don't necessarily pay GST. So, a reduction in GST rates makes those who pay GST more competitive versus those who don't. And we may surprise ourselves and find that overall tax collection goes up despite a reduction in GST rates,” the top executive underscored.

On being asked about how the GST reforms will help GCPL, he said, “The large part of the business of GCPL that will benefit is the soaps business, which is about 35% of GCPL.”

Sitapati expressed confidence in robust volume growth in the second half of the financial year. He attributed this optimism to the combined effect of the GST reforms, the income tax reductions and relatively stable crude prices and inflation.

“I'm certainly bullish that in the second half, we will see pretty sharp volume growth across consumption sectors in India,” he concluded.