GST on unbranded food products: Retailers to see tough competition

Branded products come at a premium of 15-20% as compared to unbranded ones.

The levy of 5% GST on labelled items might bridge the gap between branded and unbranded products but if the price differential remains significant, one may tend to migrate towards lose products, said Madan Sabnavis, chief economist at Bank of Baroda.

By Kritika Arora

With the government’s move to levy 5% of goods and services tax (GST) on unbranded packaged products, competition has become tougher for the unbranded food products retailers who may further lose their market share to bigger branded players.

Almost 70-75% of consumers buy unbranded packaged staples like flour, rice and pulses, but with the implementation of 5% GST on these items, traders and retailers expect prices for these products to go up by 5-10% going ahead, which in turn would lessen the competitiveness of unbranded players in the market.

“Overall impact on prices for consumers would be higher than 5% because to maintain it all levels and maintaining accounts would increase the overheads,” said Shankar Thakkar of Confederation of All India Traders.

Similarly, a Mumbai-based retailer who sells unbranded wheat flour, pulses, and spices said while the impact could take 2-3 months to reflect on the ground, for customers, prices may move up by 5-10% as prices along the value chain would also increase.

The Union government on July 18, notified that a clutch of unbranded prepackaged and labelled food items like curd, lassi, buttermilk, paneer, honey, makhana, wheat, rice and puffed rice will now attract 5% GST.

Experts say that the move could accelerate branded product consumption. “We have been seeing a shift towards branded products every year, for instance in the case of rice, there has been a 5% shift in consumption from unbranded to branded in the last 3-5 years, and now it will be 7% and upwards in the next few years,” said Akshay D’ Souza, chief of growth and insights at Bizom.

Similarly, for atta, with Parle Products and other big firms entering the space, there is a definite possibility of their share increasing rapidly as the availability of packaged atta improves significantly, added D’ Souza.

Currently, branded wheat constitutes around 17-19% of overall wheat consumption in the country.

However, economists point out that the larger section of people may start buying loose products instead and only marginal may shift to branded.

Branded products come at a premium of 15-20% as compared to unbranded ones. The levy of 5% GST on labelled items might bridge the gap between branded and unbranded products but if the price differential remains significant, one may tend to migrate towards lose products, said Madan Sabnavis, chief economist at Bank of Baroda.

While many branded players have rejoiced at the government’s move saying that now many shopkeepers will come under the GST bracket unlike before, they are more concerned about the implementation of the same.

Krishna Mohan Nyayapati, director of Emami Agrotech, said: “It is difficult to comprehend how it will be implemented because small retailers are the ones who sell maximum unbranded packaged food and many of them buy in bulk and sell in small packs or many are not registered. But overall it is a good move to get small retailers under the tax regime.”

He added that overall it is a good move for the industry as overall commodity market prices have started to come down and hence the increase in prices through the levy of 5% GST may be negated in absolute terms.

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