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Big relief for consumers: Prices of FMCG products falling after GST rollout

The Financial Express logo The Financial Express 23-09-2017 Jharna Mazumdar, Anushree Bhattacharyya
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Prices are falling in the FMCG segment a month-and-a-half after the roll out of the GST. A host of consumer majors, including Hindustan Unilever and ITC, have reduced prices of FMCG products such as soaps, shampoo, detergents, biscuits and savoury snacks, among others. This has resulted in a 3-8% decline in prices of goods across modern retail outlets, including Big Bazaar and Hypercity, apart from online grocery firms such as Bigbasket and Grofers.

After the implementation of the GST, hair oil, toothpaste and soaps have been put under the 18% tax slab, significantly lower than the previous 22-24% slab. The GST rate schedule indicates that nearly 81% of all items are in the 18% tax bracket, or below. "Post the roll-out of the GST, there has been a downward trend in prices of products as far as new stock is concerned. However, as we still have three-five months of old stock which belongs to the pre-GST regime, the larger impact would be seen once the old stock gets completely replaced by new items," said Sadashiv Nayak, CEO of Big Bazaar, Future Group India.

For instance, biscuit manufacturer Unibic India has brought down prices by 10%-20% across products. Likewise, retailers claim that prices of other food products such as museli too have come down. As for FMCG products, Hindustan Unilver in Q1FY18 results said it has reduced prices of products such as detergent bars, skin cleanser, toothpastes and hair oil. For example, a Surf Excel bar, which would earlier cost Rs 29, is now being sold at Rs 27. Similarly, the company is currently selling a pack of four Lifebuoy Activ Silver at Rs 94, instead of Rs 104.

Govind Shrikhande, managing director at Shoppers Stop, said: "At Hypercity, many of the food items have zero percent tax and we have passed the benefits to customers for our private labels. Hindustan Unilever too has reduced prices on certain products and other FMCG companies too have done the same." Moreover, lowering of prices has helped boost sales. Albinder Dhindsa, CEO of Grofers, claims that the e-grocer, prior to the GST regime, was clocking a 15% spurt in monthly sales. After the implementation of the GST, the company posted a 23% increase in sales in July.

Echoing Dhindsa, Seshu Kumar Tirumala, national head - buying and merchandising, Bigbasket, said:

"The reduction in prices of products havs helped both consumers as well as sellers. Post the drop in prices, we have seen an uptick in sales." Industry observers contend that as manufacturers get more clarity on input tax credit, a further reduction in rates is on the cards.

Rajat Wahi, partner and head - consumer, Deloitte Touche Tohmatsu India, said: "Fast moving consumer goods companies are likely to witness their costs coming down with the implementation of GST on overall logistics, warehousing and also enjoy the benefit of input tax credit. All these are likely to improve margins of FMCG companies and demand is also expected to improve as the companies are likely to pass on the benefits partially to consumers."

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