Second day of GST regime sees automobile companies like Toyota, Hero MotoCorp cut prices

MUMBAI | KOLKATA| NEW DELHI: Some car and two-wheeler prices fell on day two of the unified indirect tax regime on Sunday and consumer companies promised more cuts in the days and weeks to come as goods produced after July 1 hit the market.

Japanese automotive giant Toyota slashed prices of its cars by up to 13%, while New Delhi-based Hero MotoCorp reduced prices of twowheelers by Rs 400-4,000. Hyundai Motors, Tata Motors and Ford India are expected to unveil price cuts in the next few days taking the cue from market leader Maruti Suzuki.

India entered a new era of single, unified tax regime called the Goods and Services Tax ( GST) on Saturday, an era which promises a nation-wide single market and fewer tax hassles in the form of a leaner, simpler tax structure. Four tax slabs — 5%, 12%, 18% and 28% — replaced an assortment of local, national and state-level taxes that has been blamed for inefficiency and corruption.

Key consumer goods companies on Sunday also promised price cuts in the weeks ahead on new stocks made after July 1, a day after the country's biggest consumer goods firm Hindustan Unilever increased the weight and reduced prices of some products.

Foods major Nestle will drop prices of its Maggi ketchup, Cerelac infant foods and select dairy products. “Categories where there are reductions in taxes, appropriate price reductions would be put into effect for stocks manufactured from July. There will be a transition time before new price stocks are available in the market,” Nestle managing director Suresh Narayanan said.

Vivek Gambhir, managing director of Godrej Consumer Products, said it plans to cut prices or increase weight of its soaps soon. Pepsi, Marico, Parle and Bisleri also said that they will cut the prices of goods made after July 1.

STABILITY FIRST
While the GST legislation includes an anti-profiteering clause requiring companies to pass on the benefits of lower taxes to consumers, companies say they have to gauge the impact once new goods are produced. "We are not taking any immediate price changes. What is more important is to offer some degree of comfort and stability to the consumer first, through the existing prices as far as possible. When you are at Rs 5, to raise it to Rs 5.30, 5.40 make no sense. We are holding on to prices. We will wait and watch till the GST issues settle down," said PepsiCo chairman D Shivakumar.

It was not a one-way street however. Prices of select consumer electronic items are expected to increase marginally after an increase in taxes under GST. Prices of television, refrigerator, air-conditioner and washing machine will go up by up to 2.5% — almost half of what was initially expected — with companies working out the final price structure under goods and services tax (GST) regime.

A 42-inch LED television selling at around Rs 40,000 will now cost around Rs 40,900, while a 280 litre frost-free refrigerator selling at around Rs 26,000 will now be dearer by Rs 500. Prices of air-conditioner and washing machine will be up by Rs 400 to Rs 1,000 depending on capacity. On an average, the price increase for most of the products will be a meagre 1.5-2%.

"The industry has been holding onto any massive price hike since last Diwali with one event after another such as demonetisation impacting sales. Hence, we do not expect the small price hike due to GST will impact sales for long and sales should be normal by Independence Day when there is a sales spike due to promotions," said Videocon chief operating officer CM Singh.

BUTTER, PANEER, GHEE
Amul reduced prices of cottage cheese, dairy whitener and baby food, and increased the price of ghee while leaving cheese, butter and ice cream prices unchanged.

Producers of pickles, jams, tomato ketchup complained that GST had raised taxation and said sales had slumped after the onset of the new regime. Sellers of branded rice and wheat flour said their distributors had issues with the new system.

Amul's managing director RS Sodhi said that implementation of GST had been normal. "We don't expect any major change in revenue with implementation of GST. The consumer gets to gain. As there was substantial increase in tax for ghee, we have increased prices by Rs 25-30 a kg. On cheese, butter and ice cream prices have not been changed as increase was marginal. However, we reduced prices of milk products that came under a lower slab of 5% such as dairy whitener, paneer, baby food and cream," he said.

ATTA, PICKLES
Nitin Seth, managing director of GD Foods, which makes products including pickles, jams, tomato ketchup, instant mixes under the Tops brand, said there was a slump in demand on the first day. These products now attract 12% tax, up from 5% earlier. He said that many retail stores such as Kendriya Bhandar stores, Easy Day and others were not doing the billing as systems were being updated for GST, and they were only selling essential commodities with manual billing.

Rakesh Jain of Rajdhani Group said that his firm has increased atta (wheat flour) prices by 5% at Rs 1.20 per kg selling in retail at Rs 25.20 a kg. "Implementation is a challenge as 90% of bulk packing of 50 kg is being sold unbranded. No one (distributor or retailer) is buying as of now. The other challenge is that retailers have not registered for GST," he said.

Passengers flying business class may have to brace themselves for an increase as GST on the premium class has been fixed at 12% compared with 5% for the economy class. Airline companies say this will be passed onto customers though the absence of input tax credit on economy class fares may mean the price drop could be temporary.

"We will be able to assess the impact on us over a couple of weeks and we expect it would take four to six months for things to sort out. There are two concerns that the industry has. One is double taxation on the import of aircraft — a tax on import of aircraft as well as lease rentals, which the government has promised us that it will be sorted out," said Spice-Jet chairman Ajay Singh.

(With inputs from Mihir Mishra)