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Key Points

The government's GST rate rationalisation is set to boost consumer demand, especially for essentials. The reforms will help bridge the pricing gap between organised and unorganised players while improving rural market reach. Companies are optimistic about festive season demand, supported by tax cuts and macroeconomic recovery. The move is expected to drive volume growth and premiumisation in the sector.

Key Points: GST Rate Cuts to Boost Consumer Demand and Rural Market Growth

  • GST cuts to narrow pricing gap between organised and unorganised sectors
  • Focus on essentials to drive rural market accessibility
  • Festive season demand likely to strengthen post-reform
  • Higher disposable income from tax cuts to aid consumption growth
2 min read

GST rationalisation to boost consumer sentiment and drive demand: Report

Government's GST rationalisation on essentials expected to lift consumer sentiment, spur demand, and improve rural market penetration.

"We believe the move will lead to improving consumer sentiment, spurring demand – Centrum Institutional Research"

New Delhi, August 18

The government's recent decision to rationalise Goods and Services Tax (GST) rates is likely to ramp up domestic demand and lift consumer sentiment, according to a report by Centrum Institutional Research.

The report highlighted that the reforms will focus on rationalising GST rates for essentials and daily-use items.

This, it said, would have multiple benefits including improving consumer confidence, spurring demand through volume pick-up, narrowing the pricing gap between large organised players and smaller unorganised players.

It will also improve market penetration through low-priced SKUs that increase accessibility in rural markets, and encouraging premiumisation in the sector.

It stated, "We believe, the move will lead to improving consumer sentiment, spurring demand".

The report also pointed out that the demand recovery for consumer companies had been delayed over the last one and a half years due to macroeconomic challenges and persistent inflationary pressures.

However, in the first quarter, volumes showed a sequential pick-up and company commentary on demand was more optimistic compared with earlier quarters.

The report said most consumer companies were already depending on the upcoming festive season to drive demand, and the GST announcement would further strengthen this positive outlook.

Along with improving macroeconomic conditions, the reduction in GST on essentials is expected to drive consumption.

Other government initiatives such as MNREGA and tax cuts, which increase disposable income, will also support demand growth.

At the lower price point of Rs 5-10, the pricing will remain the same, but grammages will increase, leading to higher volume growth. At higher price points, companies will have the option to either increase grammage or cut the maximum retail price (MRP).

As per reports, the 12 per cent tax slab will be abolished, and a majority of items will now come under the 5 per cent GST rate. These items include tooth powder, packaged snacks such as bhujia, namkeen and potato chips, ketchup, jam, mayonnaise, packaged juices, noodles, pasta, and dairy-based products like butter, condensed milk, ghee, cheese and milk-based beverages.

The report outlined that the GST cuts further strengthen the thesis of demand recovery and volume pick-up in the coming quarters after several quarters of muted growth.

- ANI

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Reader Comments

S
Sarah B
As an expat living in India, I appreciate this move. The GST system here was quite complicated compared to VAT systems back home. Simplifying tax slabs will make business operations smoother too. Hope to see more such reforms!
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Ananya R
Good step but implementation is key. Last time when GST was reduced on restaurants, many places didn't pass the benefit to customers. Government should have strict monitoring mechanism to ensure price cuts reach end consumers.
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Vikram M
This will be a big boost for rural markets where price sensitivity is high. More affordable packaged foods means better hygiene and quality standards reaching villages. Hope they include more regional snacks in the 5% slab too!
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Karthik V
While this is positive, government should also focus on reducing GST on healthcare and education. These are basic needs, not luxuries. 18% GST on hospital rooms is too high when people are already struggling with medical bills.
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Priya S
Perfect timing before festive season! 🎉 Lower prices on snacks and dairy will help households during Diwali preparations. Maybe now we can afford better quality mithai and namkeens without breaking the budget.

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