The rules have to take into account industry practices
With the country’s biggest FMCG player in the dock for ‘anti-profiteering’, for not passing on Rs 380-crore worth of duty cuts in GST to consumers, the government has reason to feel satisfied that it is protecting the interests of consumers. On November 10, the GST Council decided to lower GST rates but, instead of passing these on to consumers in the form of lower prices, the National Anti-Profiteering Authority (NAA) found that “HUL had manipulated its software by increasing the base prices of as many as 12,016 items instead of only reducing the rates of tax which would have compelled the stockists to lower prices commensurate with the reduction in the rates”. This is in addition to the Rs 69 crore of extra grammage HUL gave consumers on various products without increasing prices.
Put that way, this is a serious charge, of an MNC-arm profiteering at the expense of the hapless Indian consumer. There are, however, several flaws the argument, indeed in the idea of even setting up an NAA. In a market as competitive as the FMCG one, or consumer durables for that matter, firms are trying to cut prices by as much as they can to attract customers; why would any of them try to keep prices high as NAA is suggesting? Indeed, the very act of setting up an NAA suggests the government doesn’t believe in the power of markets to discipline producers. Also, when you look at all the action by the NAA—including the Rs 380 crore HUL has been asked to pay—and compare this with the size of the industries for which this has been levied, it is clear the amount is very small; in which case, NAA is just an irritant for business.
Ideally, then, the NAA should be abolished. But even if the government decides to retain it, it needs clear rules that have to be set in keeping with industry practice/norms. HUL could have lowered prices after GST rates were cut, but this cannot be done overnight. Fresh stock can have the lower GST factored in, but what do you do with stock that is in the pipeline, with stockists or distributors? In the old days when taxes were added on to the MRP, this was easy. But now, the sticker price has to take into account all taxes. That is why, when GST rates were cut, HUL had to increase the base price so as to keep the MRP the same; else, goods would have to be recalled from the entire chain and repackaged. Indeed, this is why, on its own, HUL had declared its anti-profit gains at Rs 321 crore. And what if, due to input cost hikes or pure corporate strategy, a firm decides to hike prices at the same time GST rates are cut? This is hardly profiteering.