GST rate cuts big relief for FMCG, apparel, footwear, restaurants
Global fin services firm Bernstein paints optimistic picture
image for illustrative purpose
New Delhi: The sweeping GST rate cuts announced by the government will give a strong push to India’s consumption story, according to a report.
In its latest report, the global financial services firm Bernstein has painted an optimistic picture for sectors like footwear, quick-service restaurants (QSRs), FMCG, and grocery retail.
According to Bernstein, the biggest surprise was the sharp cut in GST on personal care and home care items such as soaps, shampoos, hair oil, powders, and toothpaste.
The tax on these products has been reduced from 12–18 per cent to just 5 per cent. The report said this move will immediately help FMCG companies as they will retain a larger share of the consumer’s spending.
In the medium term, this could lead to higher demand, either through bigger product packs or because consumers will have more money to spend on other items.
Grocery retailers like DMart, Vishal Mega Mart, and Star (part of Trent), along with quick-commerce companies, are expected to gain significantly from these changes.
In the apparel and footwear segment, the GST rate has also been revised. Earlier, apparel priced below Rs1,000 attracted 5 per cent GST and those above Rs1,000 were taxed at 12 per cent.
Footwear below Rs1,000 faced 12 per cent GST while those above Rs1,000 had 18 per cent. Now, apparel and footwear priced between Rs1,000 and Rs2,500 will be taxed at only 5 per cent.
For apparel priced above Rs2,500, the GST has been raised to 18 per cent from the earlier 12 per cent, while footwear above Rs2,500 continues at 18 per cent.
Bernstein said this is a positive change for companies like Trent, which earns about 30 per cent of its revenues from products priced above Rs1,000.
Aditya Birla Lifestyle Brands Limited and ABFRL will also benefit as many of their products fall in this price range.
Footwear retailers like Liberty, Campus, and Metro will also see an impact due to the new GST structure.
Quick-service restaurants are another big winner from the rate cuts. The GST on key inputs such as cheese, butter, ghee, margarine, sauces, and packaging materials has been reduced.
Since QSRsdo not get input tax credit, all GST on their inputs directly adds to their costs. Any reduction, therefore, improves their margins immediately.
