GST rate cuts likely to keep driving consumer demand for some quarters

Consumption has seen a further boost after the cut in goods and services tax (GST) rate post its implementation in September and this impact is likely to continue for some quarters, according to consumer companies.

 

Consumer companies say that demand has already started to see some positive impact.

 

“It's still a bit early to say, but I do feel that it will be pretty positive. This is the sense that all of us in the room have here. We may have a good few quarters and hopefully years coming for us on the back of GST 2.0,” Sudhir Sitapati, managing director and chief executive officer, told Business Standard on the sidelines of CII’s FMCG Summit.

 

Sitapati added that rural has been leading urban for a few quarters and continues to grow. “Urban has been a bit slow, but I'm hoping now with GST 2.0 a lot of the benefits of it will actually come into urban areas more than rural, because categories like foods, etc. are all urban consumer categories. I'm hoping that urban demand picks up quite soon for the industry.”

 

Sudhanshu Vats, managing director at Pidilite Industries, also echoed the same sentiment as Sitapati and said, “At the 5 per cent GST, which we have put most of our staple goods or daily consumer goods, is just the right thing to do. It is already having a bit of a positive impact, and it continues to have a positive impact in a sustained fashion, over a long period of time,” Vats said and explained that it makes India a far more level playing field. “All good companies — local, regional, national or multinational — if they play their game well, they will win,” he explained.

 

Biscuit major Parle Products has also seen the impact of GST already starting to show, especially in rural consumption.

 

The company is seeing demand from rural come in at 9-10 per cent while urban continues to lag but is still growing at 5-6 per cent.

 

“We expect the impact of the GST rate cut to be there for another 18-24 months and we will see good growth coming in due to the rate cut and this will only accelerate in the next few months,” Mayank Shah, vice president at Parle Products, said.

 

An executive who spoke on the condition of anonymity said that the supply chain is still adjusting to the new GST rates and the old stocks should clear out in another two-three months and that’s when the actual growth due to the rate cut will start to show.

 

NIQ (formerly known as NielsenIQ) said in its report released in November for the July-August-September quarter, “With inflation easing, the outlook for consumption remains optimistic and the impact of GST changes on consumption is expected in the next two quarters.” The report also pointed out that rural demand continued to outpace urban demand for the seventh consecutive quarter.