FMCG firms plan to offer more grammage for same price after GST reforms

FMCG players plan to cut prices of large packs and raise grammage in smaller packs as soaps, noodles, coffee, ghee and ice cream get cheaper under new GST rates

In light of the Goods and Services Tax (GST) reforms announced by Finance Minister Nirmala Sitharaman on Wednesday night, executives at fast-moving consumer goods (FMCG) companies are planning how to pass on the benefits to customers. 

Everyday items such as soaps, toothbrushes, hair oil, namkeen, instant noodles, chocolates, and instant coffee will now attract 5 per cent GST. Meanwhile, Indian breads, paneer, and ultra-high temperature processed milk will cease to attract any GST. 

In a bid to pass on these benefits, consumer companies are looking to hike grammage in smaller packs while reducing prices of larger packs. 

“While it is still a little early to comment, we are at the planning table to understand how we will pass on these benefits. For now, we will be increasing volumes in the smaller packs priced at ₹5 and ₹10, since it is impossible to reduce prices in tandem with the rate cuts at these points,” said Rishabh Jain, Chief Financial Officer at Bikaji Foods International. 

This will result in a grammage increase of 6–8 per cent in smaller packs, he said, adding that for large family packs, “we plan to reduce MRP by 3–5 per cent, while also introducing offers to aid sales.”

 

Ethnic snacks such as namkeens, bhujia, mixture, and other ready-to-eat edible preparations have moved from the 12 per cent slab to the 5 per cent slab.

 

The new GST rates are set to take effect from 22 September.

 

Instant coffee players, too, are evaluating how to pass on the benefits to customers. Extracts, essences, and concentrates of coffee, and preparations with a basis of these extracts or coffee, have moved from the 12 per cent slab to 5 per cent.

 

“The GST revisions will help reduce the cost burden on end consumers and boost demand. To pass on these benefits to consumers, we will follow a multipronged approach involving offer pricing, price reductions, and enhanced grammage per unit price,” said Praveen Jaipuriar, Chief Executive Officer, CCL Products, which makes the Continental brand of coffee.

 

With the large reduction in GST rates for dairy products such as ghee and ice cream, dairy companies are also planning to cut prices.

 

“We are in the process of detailed calculations on how to pass on the benefits, but consumers can expect price reductions in categories that have seen a large drop in rates—such as ice cream, moving from 18 per cent to 5 per cent, and ghee, from 12 per cent to 5 per cent. This will also bring more customers into the ambit of packaged foods and encourage a shift from substandard variants,” said Manish Bandlish, Managing Director at Mother Dairy.

 

Dairy giant Amul will also reduce prices across its portfolio, as ghee, butter, and ice cream move into the 5 per cent slab, while products such as paneer and UHT milk will now attract no tax.

 

Executives say the new regime will ease financial pressure on consumers and make everyday essentials more affordable.

 

“Rural India has been driving FMCG growth for six consecutive quarters, and this move will further strengthen demand in these price-sensitive markets, even as urban consumption continues to recover,” said Sunil Agarwal, Co-founder and Chairman of Joy Personal Care (RSH Global).

 

“With the festive season ahead, this will lift sentiment and put more disposable income in the hands of millions of Indian families. Our priority is to ensure these benefits are passed on to consumers and to continue strengthening our connect with households across India,” he added.

 

“This is going to have a positive impact on the economy,” Finance Minister Nirmala Sitharaman had said on Wednesday night while announcing changes under the new GST regime.