How are consumer companies preparing for the GST rate cut rollout?

Brand manufacturers across categories like packaged food and personal care have made two kinds of changes: slashed prices and increased volume of goods in standard price packs. Changing volumes in packaged food like atta, rice, dals, and other staples requires simple tweaks in manufacturing.

Companies such as L’Oreal are also publishing massive ads in newspapers with a new list of slashed prices applicable from 22 September. However, changing prices on existing stock could have been a challenge, because of India’s legal metrology rules.

What are these rules and why are they a challenge in this situation?

The Legal Metrology Act does not allow manufacturers to change the price, weight, volume, or other details of a packaged food by adding stickers onto the packaging. This is to prevent manufacturers or retailers from selling goods with incorrect information.

However, in a notification this week, the ministry of consumer affairs made an exception; brands can put stickers with a revised, lower price on unsold goods to pass on the benefits of lower GST, as long as this sticker does not hide the original maximum retail price.

What preparation do distributors and retailers need to do?

Both online and offline retailers, and distributors of consumer goods, need to clear old inventory (manufactured before 22 September) and ensure new goods with new prices and/or weight and volume are in stores and ready for sale.

To ensure this, offline stores, e-commerce companies, and quick commerce platforms have been running sales, offering discounts on packaged food, electronics, apparel, and footwear. However, there are challenges to managing this process.

What problems are retailers facing in clearing old stocks?

Goods such as clothes and electronics (for example, refrigerators and ACs) don’t move as quickly as everyday items like packaged staples, soaps, and items of personal care. This means retailers may be stuck selling old stock long after 22 September.

This may require retailers to run special sales on these old goods for longer than anticipated, which could delay their ability to bring in new stock in time for festive season shoppers. It could also lead to complications when claiming input tax credit.

What is the complication with input tax credit?

For goods where GST rates have been reduced — such as ACs and refrigerators — retailers and distributors may have to bear the cost of the higher price at which they originally bought the goods. For instance, an AC bought at a 28% GST will now be sold at 18% GST, but will not receive input tax credit at the old GST rate.

In cases where goods are now exempt from GST altogether, retailers may need to reverse the input tax credit they have claimed altogether. In total, these shifts will block cash for retailers and distributors, and affect their access to working capital.

Already, online retailers have alerted their suppliers to update price lists and invoices this week. In internal notes issued by Blinkit and Zepto, the quick commerce firms alerted their partners that input tax credit refunds may be delayed and charged back to them after MRPs are dropped on 22 September. Mint has reviewed copies of these notes. Zepto plans to issue debit notes for trapped GST and expects matching credit notes from suppliers. For items moving to the 0% GST bracket, adjustments will be handled via its group entity, Kiranakart Wholesale, the company’s note said.

Vaeshnavi Kasthuril contributed to this story.