GST 2.0 softens inflation blow as FMCG firms gear up for festive season | Economy & Policy News

Buoyed by GST 2.0 and tax rebates, FMCG companies saw strong festive sales last year.

 

Heading into the upcoming festive season, they expect consumer sentiment to remain high, albeit with some caution.

 

This year, uneven rainfall distribution could hurt rural demand. Also, many of the price cuts that resulted from GST have been partially offset by inflation driven by geopolitical tensions in West Asia, which pushed up raw material costs, especially crude oil and its derivatives. Companies partially passed on price increases to protect demand.

 

However, companies note that demand this festive season looks good so far.

 

While demand continues to march on, troubles could mount if geopolitical tensions in West Asia continue to push crude oil and derivative prices higher; however, that impact might be felt after the festive season.

  

“GST 2.0 helped ease the pain that would have come had those price cuts not been introduced. Right now, prices are slowly moving to pre-GST 2.0 levels due to inflation,” Tarun Arora, chief executive officer at Zydus Wellness told Business Standard.

 

He explained that last year, the government did a lot to put more money in the hands of the consumer, from tax rebates to GST cuts, coupled with lower interest rates, which continue to boost consumption.

 

“Consumers are buying more this year as well. The West Asia crisis has had an impact on inflation but had GST 2.0 not come in, price increases would have been higher as they would have come in on the pre GST prices,” Arora added.

 

There is a rainfall deficit and prices are going up because of geopolitical tensions, but those could eventually hit demand, he said.

 

“For now, I am cautiously optimistic, as demand is still holding up,” Arora added.

 

AWL Agri Business (formerly Adani Wilmar) sees buoyant demand this festive season and expects at least high single-digit growth.

 

“Rains in September have eased the pressure in many agricultural states especially Gujarat,” Angshu Mallick, executive deputy chairman at AWL Agri Business said.

 

He added that the kharif crop harvest starts in October, and monitoring the stocks that reach the market will be crucial, as this will dictate how rural demand pans out this festive season.

 

Parle Products, which houses brands like Hide & Seek and Monaco, also anticipates strong demand this festive season. So far, demand for the biscuit major is already in the high single digits, and the company expects it to inch towards double digits closer to the festive season.

 

“Last year, there was demand in the market during the festive season, there were other issues like stock availability due to the transition but other factors like tax rebates and rate cuts aided demand,” Mayank Shah, chief marketing officer at Parle Products said.

 

He explained that the rabi harvest was good this year too. While the kharif harvest is yet to be seen, he doesn’t expect it to completely dent demand, though stress might be seen, likely in pockets.