“A STUDY ON GST IMPLEMENTATION IN FMCG SECTOR”

TABLE OF CONTENTS:
Sl. No. TITLE PAGE
NO
LIST OF TABLES 6
I. INTRODUCTION 7-22

II. FMCG SECTOR ( THEORITICAL FRAME 23-35

WORK)
III. DATA ANALYSIS AND INTERPRETATION 36-43

IV. FINDINGS, CONCLUSION & SUGGESTIONS 44-47

BIBILIOGRAPHY 48-49
ANNEXURE 50-52
QUESTIONNAIRE

1
 LIST OF TABLES
S. NO TABLE TITLE OF THE TABLE PAGE
NO NO
1 2.1 PERSONAL CARE 29
2 2.2 FOOD AND BEVERAGES 30
3 2.3 HOUSEHOLD 31
4 3.1 GENDER
5 3.2 AGE GROUP

LIST OF GRAPHS
S.NO GRAPH NUMBERS PAGE
NO
1 GRAPH-3.1 37
2 GRAPH-3.2 38
3 GRAPH-3.3 39
4 GRAPH-3.4 39
5 GRAPH-3.5 40
6 GRAPH-3.6 41
7 GRAPH-3.7 42
8 GRAPH-3.8 43

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 CHAPTER I

INTRODUCTION

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INTRODUCTION:

The Goods and Services Tax (GST) was first discussed in the Kelkar Task
Force report on indirect taxes in 2003. After seven long years, a proposal to
introduce a national GST by April 1, 2010, was first mooted in the Budget Speech
for the financial year 2006-07. The idea of GST was bogged down for years in
bipartisan debate, with political parties in government trying to push it and those in
opposition pulling it down.

GST Council: The President must constitute a Goods and Services Tax
Council within sixty days of this Act coming into force. The focus of GST is to
develop a harmonized national market of goods and services.

Formation of the GST Council: GST Council consists of the following

members: (i) Union Finance Minister (as Chairman), (ii) Union Minister of State
and (iii) Minister in charge of Finance or Taxation or any other, nominated by each
state government.

Functions of the GST Council: GST Council includes making

recommendations on: (i) taxes, cess, and surcharges levied by the states, center and
local bodies subsumed in the GST; (ii) goods and services exempted from GST;
(iii)Apportionment of IGST, GST laws, principles of levy and principles that
govern the place of supply; (iv) the threshold limit of turnover below which goods
and services may be exempted from GST; (v) special rates to raise additional
resources during any natural calamity; (vi) special provision with respect to
Arunachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and (vii) any other
matters.

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 • Resolution of Disputes: For the disputes arising out of its
recommendations, the GST council may decide upon its modalities.

• Restrictions on Imposition of Tax: Certain restrictions on state such as

imposition of tax, sale or purchase of goods will be imposed by the Constitution.

• Additional Tax on Supply of Goods: Additional tax not exceeding 1% on

the supply of goods would be levied and collected by the center. This tax that is
collected would be assigned to the states for two years, or as recommended by the
GST Council.

• Compensation to States: The revenue losses arising out of the

implementation of GST to any of the states will be provided compensation by
Parliament on the GST Council's recommendations for a period of five years.

• Goods Exempted are Alcoholic Liquor for Human Consumption: Further,

the GST Council is to decide when GST would be levied on: (i) petroleum crude,
(ii) high speed diesel, (iii) motor spirit (petrol) and (iv) natural gas

GST is one indirect tax for the whole nation, which will make India one
unified common market. GST is a single tax on the supply of goods and services,
right from the manufacturer to the consumer. Credits of input taxes paid at each
stage will be available in the subsequent stage of value addition, which makes GST
essentially a tax only on value addition at each stage. The final consumer will thus
bear only the GST charged by the last dealer in the supply chain, with set-off
benefits at all the previous stages. It was introduced in India on 1 July 2017 and
was applicable throughout India which replaced multiple cascading taxes levied by
the central and state governments.

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 It is very essential for an individual to known about the impact of GST ON
Indian economy and the household expense in order to get the awareness about the
tax rates, slabs, growth and development of the economy as a whole. Basically, the
common man is not aware of the concept of GST and is pursuing it as a bane to the
economy. But practically GST is a boon to the economy. It boost ups the growth of
Indian economy.

INDIAN ECONOMY:

GST the biggest tax reform in India founded on the notion of “one nation,
one market, one tax” is finally here. The moment that the Indian government was
waiting for a decade has finally arrived. The single biggest indirect tax regime has
kicked into force, dismantling all the inter-state barriers with respect to trade. The
GST rollout, with a single stroke, has converted India into a unified market of 1.3
billion citizens. Fundamentally, the $2.4-trillion economy is attempting to
transform itself by doing away with the internal tariff barriers and subsuming
central, state and local taxes into a unified GST.

The rollout has renewed the hope of India’s fiscal reform program regaining
momentum and widening the economy. Then again, there are fears of disruption,
embedded in what’s perceived as a rushed transition which may not assist the
interests of the country.

Will the hopes triumph over uncertainty would be determined by how our
government works towards making GST a “good and simple tax”. The idea behind
implementing GST across the country in 29 states and 7 Union Territories is that it
would offer a win-win situation for everyone. Manufacturers and traders would
benefit from fewer tax filings, transparent rules, and easy bookkeeping; consumers

6
would be paying less for the goods and services, and the government would
generate more revenues as revenue leaks would be plugged. Ground realities, as
we all know, vary. So, how has GST really impacted India? Let’s take a look.

GST: The Short-Term Impact

From the viewpoint of the consumer, they would now have pay more tax for
most of the goods and services they consume. The majority of everyday
consumables now draw the same or a slightly higher rate of tax. Furthermore, the
GST implementation has a cost of compliance attached to it. It seems that this cost
of compliance will be prohibitive and high for the small scale manufacturers and
traders, who have also protested against the same. They may end up pricing their
goods at higher rates

GST: The Long Term Impact

About the long-term benefits, it is expected that GST would not just mean a
lower rate of taxes, but also minimum tax slabs. Countries where the Goods and
Service Tax has helped in reforming the economy, apply only 2 or 3 rates – one
being the mean rate, a lower rate for essential commodities, and a higher tax rate
for the luxurious commodities. Currently, in India, we have 5 slabs, with as many
as 3 rates – an integrated rate, a central rate, and a state rate. In addition to these,
cess is also levied. The fear of losing out on revenue has kept the government from
gambling on fewer or lower rates. This is very unlikely to see a shift anytime soon;
though the government has said that rates may be revisited once the RNR (revenue
neutral rate) is reached.

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 The impact of GST on macroeconomic indicators is likely to be very
positive in the medium-term. Inflation would be reduced as the cascading (tax on
tax) effect of taxes would be eliminated. The revenue from the taxes for the
government is very likely to increase with an extended tax net, and the fiscal
deficit is expected to remain under the checks. Moreover, exports would grow,
while FDI (Foreign Direct Investment) would also increase. The industry leaders
believe that the country would climb several ladders in the ease of doing business
with the implementation of the most important tax reform ever in the history of the
country.

After GST, there is a single tax provision in the supply chain where each
person is able to take tax benefit of all the taxes which he already paid and
eventually the prices become low. As well as he will come to know that how much
tax he is paid on goods and what is the actual value of his goods. Again there is
better tax administration facility in GST so manipulation in taxes is not possible.
GST have a wider scope so it will cover a maximum number of assessee so at each
stage tax benefit will generate and at the end consumer get benefit for this.

POSITIVE IMPACTS OF GST:

 GST is a single taxation system that will reduce the number of indirect taxes.
Earlier, indirect taxes were charged as central excise, VAT, service tax, etc.
From now, a single taxation term would cover all of those indirect taxes.
 The Prices of products and services would reduce so this system would
prove to be beneficial for the people who are fed up of paying huge prices.
 This would reduce the burden from the state and the central government.
Presently separate taxes are levied on goods and services that you produce.

8
 With the introduction of GST, all of these indirect taxes would come under a
single roof.
 Market development. GST would not be charged at every point of sale like
other indirect taxes so this way, market would be developed.
 Corruption-free taxation system. GST would introduce corruption-free
taxation system. In the present scenario, the tax is levied at the time of
product release from the manufacturing site, and after that retailers also pay
it.
 Positive impact on the Central and the State level
According to the latest reports, the introduction of GST would help India to
gain $15 billion every year. Let us see how:
 Improved exports.
 More opportunities for employment.
 Enhanced economy growth.
 Reduced burden on central and state government.

For a middle-class family, the main issues are “food, shelter and clothing”.
After GST, when a single taxation procedure will roll out we can say that
inflation will come down. We can expect that the rate of taxation on necessary
materials like agriculture product, medicines will be low or must be exempted.
So we can say that after GST become applicable all over the nation, it will
spread the positive energy to the people of the nation.

NEGETIVE IMPACTS OF GST:

 According to many economists, the introduction of GST in the country

would impact real estate market. This would increase new home buying
price by 8% and reduce buyers’ market by 12%.

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  GST levied by the government as CGST for central, SGST for state
government are nothing but fantasy terms representing older terms Service
Tax, CST, and VAT in a new way.
 GST is a confusing term where double tax is charged in the name of a single
taxation system.

 Most of the indirect taxes would now start coming under GST. The Central
excise tax is levied at the time of Manufacturing but GST is levied till the
selling stage.
 Most of the dealers don’t pay central excise tax and cheat the government by
simply paying the VAT. But all of those dealers would be forced to pay
GST.

GST effects the jobs too in India. There is pressure upon India about
the implementation of GST as – other states of the world. After
implementation of GST in India, it will be possible that most of the
multinational companies will come in India for their business and this will
also increase the jobs opportunity.

COMMON MAN:

Currently there are different VAT laws in different states. This creates
problems, especially when businesses sell to different states. Also, most businesses
have to pay and comply with 3 different taxes – excise, VAT, and service tax.

GST will bring uniform taxation across the country and allow full tax credit
from the procurement of inputs and capital goods which can later be set off against
GST output liability. This reform gives equal footing to the big enterprises as well
as SMEs. The aim of GST is thus to simplify tax hurdles for the entire economy.
10
 GST will be paid by all manufacturers and sellers. It will also be paid by
service providers such as telecom providers, consultants, chartered accountants etc.
However, being an indirect tax, GST will be ultimately borne by the end
consumers, India will implement the Canadian model of Dual GST, i.e., both the
Centre and State will collect GST. There will be 3 types of GST.
CGST-collected by Central government SGST- Collected by State government
IGST- Applicable on inter-state sales. It will help in smooth transfer between states
and the Centre. Keeping in mind the federal structure of India, there will be two
components of GST – Central GST (CGST) and State GST (SGST). Both Centre
and States will simultaneously levy GST across the value chain. Tax will be levied
on every supply of goods and services. Centre would levy and collect Central
Goods and Services Tax (CGST), and States would levy and collect the State
Goods and Services Tax (SGST) on all transactions within a State. The input tax
credit of CGST would be available for discharging the CGST liability on the
output at each stage. Similarly, the credit of SGST paid on inputs would be
allowed for paying the SGST on output. No cross utilization of credit would be
permitted.

The GST rates have not yet been passed by the Lok Sabha. The proposed
rates are5%, 12%, 18%, 28% (+luxury cess).

GST or Goods and Services Tax is applicable on supply of goods and

services. It will replace the current taxes of excise, VAT and service tax. Currently
there are different VAT laws in different states. This creates problems, especially
when businesses sell to different states. Also, most businesses have to pay and
comply with 3 different taxes – excise, VAT, and service tax.

11
 GST will bring uniform taxation across the country and allow full tax credit
from the procurement of inputs and capital goods which can later be set off against
GST output liability. This reform gives equal footing to the big enterprises as well
as SMEs. The aim of GST is thus to simplify tax hurdles for the entire economy.

GST will be paid by all manufacturers and sellers. It will also be paid by
service providers such as telecom providers, consultants, chartered accountants etc.
However, being an indirect tax, GST will be ultimately borne by the end
consumers, just like in the current process. Food grains will have 0% tax to provide
relief to consumers.

For the general public, there is the actual impact of any economy is when the
prices of their necessity become affected. For public in large when prices become
low for the day to day goods and services which are consumed, the economy is
good otherwise if the inflation rate is higher than the public gets unsatisfied with
the changes done by the government.

Expect reduction in prices of:

 FMCG goods such as shampoos, chocolates

 Eating out
 Small cars
 DTH

Increase in prices of:

 Luxury cars
 Tobacco
 Aerated beverages

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  Textiles

Change is never easy. Other countries which have implemented GST before
India have faced inflation and price hike during the transition period. However,
there are anti-profiteering measures in the GST bills which will keep price hikes in
check and stop the economy from blowing over. Once GST is implemented, most
of the challenges of the current indirect tax regime will be a story of the past. India
will become a single market where goods can move freely across state borders,
compliance will be easier, and costs of daily goods will reduce.

GST impact on common man:

GST is the biggest economic reform since India's Independence so it is

certainly going to affect your day to day life as well.

GST impact on common man: So, GST is finally here and so is the headache
to decide a new budget for yourself. From big corporate houses to small businesses
and regular chaiwallahs, everyone is gearing up to get used to this new tax regime.
GST is the biggest economic reform since India’s Independence so it is certainly
going to affect your day to day life as well. The government has tried to ensure no
shocks result from its move and the changeover to the new tax regime is smooth.
Here’s how GST will impact your daily budget:

1. Cabs

If going to work or college has put a hole in your pocket, GST will bring
slight relief to that. Under the current system, 6% tax was imposed on cab rides
which will now be reduced to 5%. Even though it is a marginal difference, you
may end up saving a bit by the end of the month.

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2. Personal care

Ever desired to buy those fancy grooming products but decided against it
since the price was too high? Well, your time has come. Tax on personal care
products like soaps, hair oil, detergent, kajal, tissue paper and toothpaste has been
brought down from 24-28% to 18% which certainly help you save a lot of amount.

3. Clothing

Not just grooming but getting ready for parties, college and work will also
get cheaper. While silk and jute have been exempted from taxes, cotton and natural
fiber will be taxed at 5%, man-made fibers at 18%, and apparel costing below Rs.
1,000 at 5%. Apart from this, GST rate of 5% will be imposed on footwear below
Rs. 500.

4. Electronic items

Now you can depend more on electronic items in your daily life as prices of
geysers, static converters (UPS) and electric transformers will be lowered. Mobile
phones will also get cheaper as the tax levied on them will be reduced to 12% from
13.5%. Apple has already slashed the prices of iPhones by 7.5%. To know the
latest prices.

5. Automobiles

The automobile industry will get a major boost as the prices of entry-level
cars are expected to drop significantly. Two-wheelers with engine capacity below
350 cc, SUVs and three-wheeler commercial vehicles will now be cheaper.

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ANALYZING THE CONCEPT THROUGH AN EXAMPLE

Consider a simplified X rate of Interest that is 10% at each level. There are
four levels; they are manufacturer, distributor, whole seller and retailer.
Manufacturer wise the raw material is said to be rupees 50 for manufacturing the
product, he adds the value of rupees 50 for the product so the product is rupees 100
and for selling this product he needs to pay 10% tax that is rupees 10 so the cost of
the product to the distributer is raised by rupees 110. The distributer adds value of
rupees 20 which is his profit so the price becomes rupees 130. Distributor also sells
at 10% taxes on the price that is rupees 13 so the product becomes rupees 143 to
the whole seller. The whole seller also adds rupees 20 that is his profits and sells
the product at tax of 10% that is on rupees 163 where the cost of the product that
retailer buys is raised to 179.3. Then the retailer also will add his profits of rupees
20 and sells it to the ultimate consumer. The consumer buys the product by paying
10% of tax on rupees 179.3. Therefore the final product costs rupees 219.23. This
is how the current taxation system is working.

Now we take the same example in case of GST. Manufacturer wise raw
material is said to be of rupees 50 and the manufacturing value of the product is
rupees 50, gives the value of product that is 100 but this time manufacturer as to
pay taxes on his profits that is 10% on rupees 50 that is rupees 5. However, the
selling price does not increase and the cost of product for the distributor remains to
be 100. He then adds rupees 20 as his profits, but pays 10% tax on his profits, that
is rupees 2. Therefore the cost is rupees 120for the wholesaler as the price does not
change due to tax. Whole seller also adds his profits of rupees 20 on which he pays
tax of 10% that is rupees Therefore, the cost of product for retailer will be rupees
140. Where he adds his profits of rupees 20. Therefore, the final price for
consumption is rupees 160.

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 So, if the prices are compared the product is rupees 59.3 cheaper in GST
system than the pre GST system.

NEED FOR THE STUDY:

GST brings in uniform tax laws for all the industries, across all the states of
the country. Under this, the taxes would be divided between the Central and State
government based on a predefined and pre-approved rate. Additionally, it would
become much simpler to offer services and goods uniformly throughout the nation,
since there will not be any extra state-levied taxes, unlike in the prior indirect taxes
system. The present study helps in finding out how GST is likely to effect the
FMCG sector, and draw a sketch of change in consumer’s expenditure pattern.
REVIEW LITERETURE:

 Dr. Mohan Kumar and CA Yogesh kumar in there paper titled” GST & its
Probable Impact on the FMCG Industry in India”. In their paper they studied
the impact of GST on FMCG products and to understand the how GST will
operate in various sectors and also whether it’s a boon or bane to Indian
economy.
 Dr. R. Vasanthagopal (2011-12) studied, “GST in India: A Big Leap in the
Indirect Taxation System” and concluded that switching to seamless GST
from current complicated indirect tax system in India will be a positive step
in booming Indian economy. Success of GST will lead to its acceptance by
more than 130 countries in world and a new preferred form of indirect tax
system in Asia also.
 Nitin Kumar (2014-16) studied, “Goods and Service Tax - A Way Forward”
and concluded that implementation of GST in India help in removing
economic distortion by current indirect tax system and expected to

16
 encourage unbiased tax structure which is indifferent to geographical
location.
 Monika Sehrawat and Upasana Dhanda in there paper title “GST IN INDIA:
A KEY TAX REFORM”. In their paper they studied the features of GST
and also the advantages and challenges of GST.
 Pinki, Supriya Kamma and Richa Verma (July 2014)7 studied, “Goods and
Service Tax- Panacea For Indirect Tax System in India” and concluded that
the new NDA government in India is positive towards implementation of
GST and it is beneficial for central government, state government and as
well as for consumers in long run if its implementation is backed by strong
IT infrastructure.
 Ehtisham Ahmed and Satya Poddar (2009)3 studied, “Goods and Service
Tax Reforms and Intergovernmental Consideration in India” and found that
GST introduction will provide simplier and transparent tax system with
increase in output and productivity of economy in India. But the benefits of
GST are critically dependent on rational design of GST.

OBJECTIVES:

 To study the implementation of GST in India.

 To study the pre and post scenario of implementation of GST in
FMCG sector.
 To analyze the consumer expenditure pattern.

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 METHODOLOGY:
 DATA SOURCE: The present study is based on data collected primarily from
the consumers through structured questionnaire and also from the secondary
sources like books, magazines, articles, journals, e- resources etc.
 SCOPE OF THE STUDY: The scope of the study is limited to two categories
of the FMCG industry, that is,
i) Personal care products (Toothpaste, Skin care, Sanitary Napkins,
Shampoo, Deodorants);
ii) Food and Beverages (Flour and pulses, Cold drinks and Snacks, Dairy
products, Chocolates and ice-creams).

LIMITATIONS OF THE STUDY:

 The study limits its focus only on the two categories of the FMCG
Sector.
 As the study was conducted within 5 month of the GST Rollout,
sufficient data inputs were not available.

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 CHAPTER II
FMCG SECTOR
(THEORITICAL FRAMEWORK)

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FAST MOVINING CONSUMER GOODS
Fast-moving consumer goods (FMCG) or consumer packaged goods (CPG)
are products that are sold quickly and at relatively low cost. Examples include non-
durable goods such as packaged foods, beverages, toiletries, over-the-counter
drugs and many other consumables. In contrast, durable goods or major appliances
such as kitchen appliances are generally replaced over a period of several years.
Many fast moving consumer goods have a short shelf life, either as a result
of high consumer demand or because the product deteriorates rapidly. Some
FMCGs, such as meat, fruits and vegetables, dairy products, and baked goods, are
highly perishable. Other goods, such as pre-packaged foods, soft drinks, chocolate,
candies, toiletries, and cleaning products, have high turnover rates. The sales are
sometimes influenced by holidays and seasons.
Packaging is critical for FMCGs. The logistics and distribution systems
often require secondary and tertiary packaging to maximize efficiency. The unit
pack or primary package is critical for product protection and shelf life and also
provides information and sales incentives to consumers.
Though the profit margin made on FMCG products is relatively small (more
so for retailers than the producers/suppliers), they are generally sold in large
quantities; thus, the cumulative profit on such products can be substantial. FMCG
is a classic case of low margin and high volume business.

The Indian FMCG sector is the fourth largest sector in the economy with a
total market size of US$ over 13 billion. This sector has grown at a rate of 11% in
the last decade and is expected to continue the trend upwards with a projected 14.5
per cent up to 2022. India has a considerably strong MNC presence, which is
sustained by a well-established distribution network in place, competition amongst
the organized and unorganized segments and low operational cost. The inventory

20
cost for the products is low as they have a small shelf life. Increased product
awareness, changing lifestyle, and easier accessibility have and continue to be key
influencers of this market. The FMCG industry is going to benefit from the lower
logistics cost and better competitive market and rates for most of the products
being kept under the expected tax bracket.

Characteristics of FMCG: The following are the main characteristics

of FMCGs

From the consumer's perspective

 Frequent purchase
 Low involvement (little or no effort to choose the item)
 Low price
 Short shelf life
 Rapid consumption

From the marketer's perspective

 High volumes
 Low contribution margins
 Extensive distribution networks
 High stock turnover

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Government initiatives

Some of the major initiatives taken by the government to promote the

FMCG sector in India are as follows:

 In the Union Budget 2017-18, the Government of India has proposed

to spend more on the rural side with an aim to double the farmer’s
income in five years; as well as the cut in income tax rate targeting
mainly the small tax payers, focus on affordable housing and
infrastructure development will provide multiple growth drivers for
the consumer market industry.
 The Government of India’s decision to allow 100 per cent Foreign
Direct Investment (FDI) in online retail of goods and services through
the automatic route has provided clarity on the existing businesses of
e-commerce companies operating in India.
 With the demand for skilled labour growing among Indian industries,
the government plans to train 500 million people by 2022 and is also
encouraging private players and entrepreneurs to invest in the venture.
Many governments, corporate and educational organisations are
working towards providing training and education to create a skilled
workforce.
 The Government of India has drafted a new Consumer Protection Bill
with special emphasis on setting up an extensive mechanism to ensure
simple, speedy, accessible, affordable and timely delivery of justice to
consumers.
 The Goods and Services Tax (GST) is beneficial for the FMCG
industry as many of the FMCG products such as Soap, Toothpaste and

22
 Hair oil now come under 18 per cent tax bracket against the previous
23-24 per cent rate.

Road Ahead

 Rural consumption has increased, led by a combination of increasing

incomes and higher aspiration levels; there is an increased demand for
branded products in rural India. The rural FMCG market in India is
expected to grow at a CAGR of 14.6 per cent, and reach US$ 220
billion by 2025 from US$ 29.4 billion in 2016.
 On the other hand, with the share of unorganised market in the FMCG
sector falling, the organized sector growth is expected to rise with
increased level of brand consciousness, also augmented by the growth
in modern retail.
 Another major factor propelling the demand for food services in India
is the growing youth population, primarily in the country’s urban
regions. India has a large base of young consumers who form the
majority of the workforce and, due to time constraints, barely get time
for cooking.
 Online portals are expected to play a key role for companies trying to
enter the hinterlands. The Internet has contributed in a big way,
facilitating a cheaper and more convenient means to increase a
company’s reach. By the year 2025, e-commerce will contribute
around 10-15 per cent sales of few categories in the FMCG sector.
 Mr. Mark Mobius, Executive Chairman, Templeton EM, opined that
the Goods and Services Tax (GST) will lead to mergers and rise of
world class consumer companies in India. GST and demonetization

23
 are expected to drive demand, both in the rural and urban areas, and
economic growth in a structured manner in the long term and improve
performance of companies within the sector.

Top Companies

According to the study conducted by AC Nielsen, 62 of the top 100 brands

are owned by MNCs, and the balance by Indian companies. Fifteen companies
own these 62 brands, and 27 of these are owned by Hindustan UniLever. The top
ten India FMCG brands are

1. Hindustan Unilever Ltd.

2. ITC (Indian Tobacco Company)

3. Nestlé India

4. GCMMF (AMUL)

5. Dabur India

6. Asian Paints (India)

7. Cadbury India

8. Britannia Industries

9. Procter & Gamble Hygiene and Health Care

10. Marico Industries

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CLASSIFICATION:
FMCG sector in India is broadly classified into the following three categories:
 Personal care
 Food and beverages
 Households.
Personal Care:
The personal care industry under the Consumer-Packaged goods sector
manufactures the products, which are used for personal hygiene and for
beautification. This industry is composed of hair care, skin care, and oral care and
bath products. The sector is driven by rising income, rapid urbanization, and
celebrity promotions. This industry accounts for 22% of the FMCG sector in India.
The different slab rates applicable for the majorly used products of personal care
are categorized as follows:

TABLE: 2.1
NIL 5% 12% 18% 28%
Kokum/ bindi agarbattis Tooth-powder Tooth paste Shampoos
Sanitary napkins Hair oils Skincare products
Deodorants
Shaving cream
Cosmetics and
toiletries

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Food and Beverages:

The Food and Beverage industry is supported by vast agricultural land in

India. The other helpful factors, which make this industry as the biggest of the
consumption categories, include - large extents of arable land, favorable climate,
and availability of cheaper labour. Another major factor propelling the demand for
food services in India is the growing youth population, primarily in the country’s
urban regions. Food and Beverages segment is the leading industry in the FMCG
sector in India, with a contribution of 43%. The different slab rates applicable for
the majorly used products are categorized as follows:

TABLE: 2.2
NIL 5% 12% 18% 28%
Milk Frozen vegetables Butter Cool drinks Chocolates
Eggs Branded paneer Ghee Snacks Ice creams
Curd, paneer Honey Cheese Biscuits
Fresh Branded flour and Dry fruits Instant food
vegetables pulses mixes
Wheat, rice spices Frozen
meat
Refined flour Roasted coffee Fruit
beans/tea juices
Packaged foods
Sugar

26
Household Care:
The home care products market in India has grown due to the increased
awareness about health and hygiene, as well as considerable increase in per capita
disposable income. Extensive marketing campaigns as well as the launch of new
product segments play a major role. Several FMCG majors have entered the
homecare market with offerings across multiple product categories. Multinational
players have a well-established presence and several regional players are
establishing nation-wide presence. The different slab rates applicable for the
majorly used products under the household care industry are categorized as
follows:

TABLE: 2.3
NIL 5% 12% 18% 28%
Candles soaps Detergents
Washing bar Shower gels
soaps
Polishes and
creams

The FMCG industry fared well in India in the recent years with consumer
food services, soft drinks, household and personal care segments experiencing a
tremendous growth with the increasing disposable income and the growing
economy. The alcoholic drinks, tobacco had witnessed low growth given the
stricter government policies and the increasing health awareness among the
consumers. Ready to eat food segment such as instant noodles and pasta would be
experiencing enormous growth given the new FSSAI guidelines with clearly

27
designed rules, along with the prelaunch of the most preferred brand of noodles in
the country and with Pantanal starting its own ready to eat food range. The
personal care products are anticipated to witness huge advancements especially
among the haircare segment. Local Players such as Pathanjali, with their
aggressive marketing and expansion strategies and ever diversifying product
portfolio would dominate the Market in the forthcoming period. Most of the
consumer goods products are moving to online platforms and most of the major
supermarkets have their own online ordering portals and mobile apps making it
convenient for the consumers to order online with just a click of a button during
their busy schedules. Owing to lack of awareness and security issues Cash on
Delivery (Cod) remains the most preferred method of payment among the Indian
consumers. An increasing demand from the rural and tire-2population can be
witnessed given the increasing annual income and the awareness for the products
and the increasing digitization making them one of the major influencers of the
FMCG sector. Given the fact that more than 66% of the population in India is rural
it widens the scope for the FMCG segment digitally

GST EFFECT ON THE FMCG SECTOR

The new Goods and Services Tax (GST) regime will bring several benefits
for the economy, and could specifically the fast-moving consumer goods (FMCG)
industry. The rates for various FMCG segments have mostly been along expected
lines. The FMCG companies whose tax incidence has been brought down under
the new GST slab rates, are likely to pass on the benefit to the consumers in the
form of decreased prices. Lower prices could potentially support volume growth
products, particularly in the rural segment.
Under the proposed GST system, various Indirect Taxes would be subsumed
(except for few taxes such as Stamp Duty) and hence it is anticipated that it would
28
result in a simpler tax regime, especially for industries like FMCG. Apart from the
simplification of tax compliances, this move is also to have a noticeable impact on
the FMCG Sector. The previous indirect taxes paid by these companies stood at
around 27% (those being Excise Duty of 12.5% and VAT ranging from 12% to
15%). With GST in place, there are varied slab rates across product categories,
ranging from 5% to 28%. These category-wise tax rates announced by the GST
Council have brought out a mixed response from the FMCG Industry, with some
calling it positive, while leaving many others disappointed.
The impact of GST is going to be spread across a number of elements: working
capital, profitability, pre-existing contracts with customers or vendors, accounting,
accounting procedures, etc. Hence, it is only fitting to say that GST is going to
majorly affect important aspects of all businesses.
The implementation of GST has provided most FMCG companies with a
chance to generate considerably high savings in distribution and logistics cost as
the requirement of multiple sales depots has been eliminated.
As per the Government’s new GST rates, 18 percent tax bracket covers nearly 81
percent of items whereas 28 percent tax slab covers the remaining 19 percent at the
highest. After looking at the schedule, it can be broadly stated that the tax rate is
neutral to positive for most FMCG sectors. Following are a few impacts on the
FMCG companies:

Reduction in Logistics Cost:

The GST can be advantageous for the FMCG Sector as it gives room for
saving a considerable amount of expenses on logistics. The Distribution costs of
the FMCG Companies is expected to reduce by 1.5-2% after GST implementation
as GST will be levied on goods transportation and full credit will be available on
interstate transactions due to warehouse optimization. Due to an easier supply
29
chain management, tax payment, claim of input credit, removal of CST under the
GST regime, there is going to be cost reduction in transportation costs and storage
of goods. It is expected that the reduction in cost and taxes would make the
consumer goods cheaper. The GST structure can reduce the long and time-
consuming queues at border checkpoints and other entry points within and between
the states, thereby reducing costs.
Stock Transfers:
GST introduces the concept of uninterrupted flow of input tax credit across
the supply chain (from manufacture until it the final consumer) within and across
states. Secondly, since Supply is the crucial taxable element under GST, the
concept of Manufacture, Trade and provision of services become irrelevant. Stock
transfers outside the State will be subject to GST. It is yet not made clear if stock
transfers within the State will also be subject to GST. Additionally, with respect to
the valuation of stock transfers, the GST Valuation Rules provide that the value of
goods shall be the transaction value. Transaction value is the price paid or payable
for the supply of goods.
Impact on Input Tax Credit:
The Input VAT on goods or inputs used in manufacture of goods which are
transferred, will be available at a reduced rate. The rate of reversal differs from
State to State. Generally, Input VAT credit is available in excess of 4 % of tax paid
on a purchase. For example, If VAT paid on purchase is 12.5%, then the excess of
4 % i.e. 8.5% will be allowed as Input VAT credit and remaining 4% will be
reversed. The ITC reversed will be added as product cost and will result in
cascading effect. However, GST provides that the tax paid on stock transfer will be
completely made available as input tax credit. Thus, it eliminates the cascading
effect and as a result, the product will be cost effective.

30
GST Rate on FMCG Goods:
In the GST Goods and Services tax categories, most of the products/goods
have been categorized under the tax brackets as already expected by the FMCG
industry experts. Although there are, few products placed under the 12% bracket,
which is expected to be more expensive than under the previous tax laws. FMCG
sector is has received the tax reform positively as the industry is going to benefit
from the better competitive market and rates for most of the products being kept
under the expected tax bracket. As the consumer goods become more affordable
now that the GST is effective in the country, the FMCG companies are anticipating
witnessing the boost in the consumption.
GST transition is not just a transition of tax; it affects every aspect of the business
operations and therefore it requires a ‘whole of business’ approach to ensure a
smooth transition.

31
 CHAPTER -III

DATA ANALYSIS

&

INTERPRETATION

32
IMPACT OF GST ON FMCG SECTOR
To study the impact of GST on FMCG sector, a survey is conducted with the
sample size of 58members around Hyderabad by means of consecutive nonrandom
sampling technique i.e., this sampling technique can be considered as the best of
all non-probability samples because it includes all subjects that are available that
makes the sample a better representation of the entire population. The following
are the points which we can draw from the survey done.
GENDER (3.1)
gender No of people
Male 34
Female 24
total 58

Graph 3.1

gender

male female

From the above table that is (3.1) we can know that male respondents are 34 and
female are 24.

33
AGE GROUP: (3.2)
Age group Number of
respondents
20-30 34

30-40 6

40-50 5

50-60 12

60-80 1

Graph 3.2

Out of total respondents of 58 maximum are from the age group of 20-30
and the minimum are from the age group of 60-80. By this we can
understand that maximum respondents are of young generation.

34
TYES OF PRODUCTS PREFER BY DIFFERENT INDIVIDUALS
Graph 3.3

From the above pie chart (3.3) 15.5% of the population go with only brands
and 1.7% of the population go with not branded products & rest of the
population that is 82.8% prefer both branded and not branded products.

TYPE OF PRODUCTS INDIVIDUALS SPENDS MORE

AMOUNT OF INCOME:
Graph 3.4

35
 From the above pie chart (3.4) 6.9% of the population go with only personal
care and 20.7% of the population go with food and beverages products &
rest of the population that is 72.4% prefer both personal care and food and
beverage.

CHANGE IN LEVEL OF PRICES OF FOOD & BEVERAGES:

Graph 3.5

Chart Title
35

30

25

20

15

10

0
increase in price no change decrease in price

dairy products spices and pulses packaged foods

From the above graph (3.5) following interpretations can be drawn

 16 out of 58 respondents feel that there is an increase in the price of
the dairy products. 32 feels there is no change in the prices and 20
feels there is a decrease in prices of dairy products.
 When it comes to spices and pulses 27 respondents feel that there is
an increase in price, 18 feels there is no change in price and 16 feels
there is a decrease in price.

36
  On packaged goods, 13respondents feels there is an increase in price,
9 feels there is no change and 3 feels there is a decrease in price.

CHANGE IN PRICE LEVEL OF PERSONAL CARE PRODUCTS

Graph 3.6

Chart Title
40

35

30

25

20

15

10

0
increase in price no change decrease in price

cosmetics hair oils and shampoos skin care

From the above graph (3.6) following interpretations can be drawn

 Out of 58 respondents, 38 feels there is an increase in the price, 15 feels
there is no change in prices and 13 feels there is a decrease in prices on
cosmetics.
 Out of 58 respondents, 12 feels there is an increase in the prices, 10 feels
there is no change in the price and 1 feels there is a decrease in price on hair
oils and shampoos.

37
  Out of 58 respondents, 13 feels there is an increase in the prices, 5 feels
there is no change in the price and none of them feels there is a decrease in
price on hair oils and shampoos.

WITH THE IMPLEMENTATION OF GST, THE EFFECT ON

YOU’RE PURCHASING OF PRODUCT
Graph 3.7

From the above pie chart (3.7) out of 58 respondents, 37.9% of population has
changed their purchasing pattern of products. 31% of the population says there
may be a change or may not be a change in their purchasing pattern. 31% of the
population says there is no change in their purchasing pattern.

38
DID THE GST BENEFITED THE COMMON MAN
Graph 3.8

From the above pie chart (3.8) out of 58 respondents, 19% of population feels that
the common man benefited out of GST. 41.4% of the population feels that there
may be a benefit out of GST. 39.7% of the population says there is no benefit out
of GST.

39
 CHAPTER IV

FINDINGS, CONCLUSION

& SUGGESTIONS

40
FINDINGS AND INTERPRETATION
The survey validates the point that when a new reform comes into force, it
surely leaves its impact on the common man as well. In the survey conducted,
there is a positive wave from the respondents with a majority of them opining that
the tax reform will turn out to be beneficial for the country. Following are the
points observed in the survey conducted.
 By the study and consumers responses, it is understood that prices are
increased for some products and decreased in some products.
 The purchasing pattern has changed for those classes of consumers
who have income constraints. But, there is no big change in the
consumers purchasing pattern because there is a slight variation in
prices and consumers are with the perception that if there is any
change in price, they still buy what they choose to.
 From the above graphs and interpretations, we can observe that there
is an increase in the prices of the cosmetics. This is mainly due to the
increase of percentage from 3-12%.
 There is no change or less change in the prices of dairy products as
they have come under the tax slab below 5%.
 There is an increase in prices of pulses and spices. This is also due to
the increase of percentage to 5%
 From the graphs we can understand that there is also an increase in
the skin care products as they come under the slab of 28%.
 There is no big changes in the pre and post scenario in the FMCG
sector except in some areas of health care with implementation of
GST.

41
  Previous tax rates for the FMCG industry is around 22-24 percent.
Under GST, the tax rate comes to an average of 18-20 percent.

REASONS:
The following are the pros and cons of GST given by the respondents of the
survey.
 Due the increase in prices the purchasing power has reduced for some
products and increased for some products.
 Essential items are purchased whether there is increase or decrease in
price.
 Price changes doesn't affect the love towards by brand of individuals.
 Petrol & Diesel have gone up, monthly groceries i.e. pulses etc., have
gone up.
 Cost of living has increased.
 A common man in India is below middle class and a section of
intermediary middle class, his life is just trying to meet both ends
(needs & purchase power) is always on one particular inclination i.e.
his purchase power is down trend, he tries to stabilize his needs even
though priorities keeps on changing.
 Only if the customer insists on invoicing while purchasing goods and
GST will give more money to poor states and also more money can be
generated. Individuals are benefitted by decrease in prices and leads
more consumption, which further leads to more production. By
introducing GST, all indirect taxes are cut down and common can
understand easily. This leads to less corruption.
 There is no major differences in MRP.

42
  Individually there may not be benefit, but due to single tax system
definitely some benefit is there.
 It is more understandable than the previous tax system.
CONCLUSION
In short, under the GST regime, various Indirect Taxes would be subsumed
(except for few taxes such as Stamp Duty) and hence it is expected that it would
result in a simpler tax regime, especially for industries like FMCG. It has increased
the ease of doing businesses thus helping small and medium traders. It is more
understandable than the previous tax system. I hereby conclude that, Price of Many
products has been reduced. There is no real fall in the prices of any items, so it
doesn't change anything for the common man. Individually there may not be
benefit, but due to single tax system definitely there is some benefit as it is one
indirect tax with transparency not only borne by the ultimate customers.
SUGGETIONS:
 Government should concentrate on big shots, Swiss bank accounts, if it sets
properly everything will be clear.
 Providing more clarity about what percent up to different products are
charged.

43
BIBILIOGRAPHY

44
 Secondary data
 http://www.ey.com/in/en/newsroom/news-releases/ey-gst-boon-or-bane-for-
fmcg
 https://www.knowyourgst.com/question/gst-rate-of-tax-on-aata-besan-meda-
and-other-flour/98/
 https://www.ibef.org/industry/indian-food-industry.aspx
 http://www.gstindia.com/about/
 http://www.india-opportunities.es/archivos/publicaciones/FMCG-January-
2016.pdf
 http://shodhganga.inflibnet.ac.in/bitstream/10603/74309/6/06_chapter%203.
pdf
 https://cleartax.in/s/impact-of-gst-on-indian-economy
 Retrieved from http://bankingpathshala.com/vocabulary-24-june-2017/

45
ANNEXURE

46
Questionnaire
Name: ____________
Gender:
o Male
o Female
Age group:
o 20-30
o 30-40
o 40-50
o 50-60
o 60-80
WHAT TYPE OF PRODUCTS WOULD YOU PURCHASE?
o Branded
o Non-branded
o Both
ON WHAT TYPE OF PRODUCTS YOU SPEND MORE OF
YOUR INCOME
o Food and beverages
o Personal care
o Both
DID THE PRICES INCREASE WITH THE IMPLEMENTATION OF GST,
PLEASE MARK THE CHANGES
Direct products
o Increase
o Decrease
o No change

47
Skin products
o Increase
o Decrease
o No change
Spices and pulses
o Increase
o Decrease
o No change
Packaged foods
o Increase
o Decrease
o No change
Cosmetics
o Increase
o Decrease
o No change
Hair oils and shampoos
o Increase
o Decrease
o No change
WITH THE IMPLEMENTATION OF GST, IS THERE ANY EFFECT ON
YOUR PURCHASING OF PRODUCTS
o Yes
o No
o Maybe
STATE THE REASON FOR THE ABOVE ANSWER
______________________________________

48
DO YOU FEEL THAT GST BENEFITED COMMON MAN
o Yes
o No
o May be
STATE THE REASONS FOR THE ABOVE ANSWER
_________________________________

Thank you……

49