New Delhi [India], 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.
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