Lower GST may heat up demand for packaged foods, daily essentials

Kolkata | New Delhi: Lower GST rates proposed by the government are expected to spur demand for categories such as packaged food, daily essentials, televisions, and air conditioners, company executives said. Notably, prices of ACs and large-screen televisions are expected to drop 8-10%.

Prices of luxury handbags and cosmetics are however expected to rise up to 10% as these may attract 40% GST, if the proposals are formalised, the executives said.

Currently, within electronics, ACs and large-screen TVs above 32-inch screen sizes attract 28% duty. Others such as smartphones, refrigerators, small-screen TVs of 32-inches and below, washing machines, microwave ovens, and geysers are already at the 18% slab.

Executives at makers of electronics and gadgets said they expect rationalisation of GST rates on ACs and large-screen TVs to 18%, which would result in at least 8-9% drop in prices.

Any rate rationalisation will give a significant boost to demand when prices of products such as ACs are poised to go up next year due to energy rating upgradation, said Satish NS, president, Haier Appliances India.

"In televisions, the large screen is the only segment growing which will get further catalysed," he said.

AC manufacturer Blue Star is expecting a surge in sales if the GST rate is reduced. "While ACs will no doubt compete with many other aspirational categories whose GST rate would come down, still it's a big positive for sales," said B Thiagarajan, managing director at Blue Star. The industry was lobbying for an 18% GST rate for 5-star-rated ACs. The rationalisation of GST rates on electronic products will amplify demand, local manufacturing and spur the industry's commitment to Atmanirbhar Bharat, according to Salil Kapoor, an electronics industry advisor.

For packaged food and daily essentials, industry executives said lower GST slabs would enhance consumption and sentiment after five quarters of sluggish sales, as urban consumers particularly, had cut back on spending, impacted by food and fuel inflation.

"If the proposed lower slabs of 5% or nil are implemented for foods and daily essentials, we expect a significant increase in demand, as sentiment would be positive, particularly for entry-level packs," a senior executive at a listed packaged food company said, requesting anonymity. "Coming on the back of a good monsoon, the festive season should see a much-needed uptick in demand."

The proposals, if implemented, will align with forecasts of demand revival in the next two quarters. Research firm NielsenIQ said in its June quarter update on Wednesday that urban recovery is gaining traction, particularly in smaller towns, adding that with inflation easing and a favourable monsoon forecast, the outlook for consumption remains optimistic.

Overall, value sales grew 13.9% year-on-year in the June quarter, aided by sustained rural demand and urban recovery, while volumes rose 6% y-o-y, with consumers preferring smaller packs, NielsenIQ noted.

Discretionary categories have been hit for the last 9-10 quarters as consumers cut back on spending due to high inflation and poor earnings growth.

Cigarettes however continue to face multiple taxes currently spanning GST, compensation cess, national calamity contingent duty (NCCD) and excise duty.

While the GST rate is 28% with cess at 5%, the rest are dependent on the cigarette stick size. With these, the tax rate varies from around 38% to 53% of the selling price.