A Study On Impact Of GST On FMCG In India MMS (SEM IV)

Introduction

What is GST in India?

GST stands for "Goods and Services Tax", and is proposed to be a comprehensive
indirect tax levy on manufacture, sale and consumption of goods as well as services at the
national level. It will replace all indirect taxes levied on goods and services by the Indian
Central and State governments.

The FMCG sector contributes a significant USD 6.5 billion in direct and indirect taxes.
The fast moving consumer good (FMCG) sector of India comprises more than 50 percent
of the food and beverage industry and another 30 percent from personal and household
care, thereby spanning the entire rural and urban parts of the country. Reports suggest the
sector contributes a significant USD 6.5 billion in direct and indirect taxes. Hence, the
sector is likely to see a significant impact once the Goods and Services Tax (GST) Bill is
passed as the companies set up warehouses across the states in a bid to have a more tax
efficient system. Even from the fast-moving consumer goods (FMCG) industry, the sheer

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efficiency of goods and services tax (GST), if the design is such that the credits do not
stick to the business and are passed on in the value chain, there will be benefits even from
an efficiency perspective for a FMCG industry. The second fact is the fact that FMCG
industry today has a network design which is also entirely driven by the concept of stock
transfers and then sale through depots. Multiple warehouses will not consolidate nearly
because there is a tax change, because the 2 percent origin tax of central sales tax (CST)
will go away assuming 1 percent origin tax does not exist in the design of GST. Then
there could also be an opportunity to see whether they can consolidate warehouses, but
still keeping in mind, the speed to market. So, those are two things that I directly see as a
benefit from the FMCG. In FMCG industry, there are several procurements which are
done from fiscal units which are in places like Himachal and Uttaranchal where there is a
complete excise benefit. What will be the treatment of those units tomorrow? Will they
move on to a refund mechanism and hence what could be the trapped cash flow, working
capital requirements and so on and so forth, net of the input credit that may potentially
lie? Second is, today in the value added tax (VAT) regime, many of the processed foods
which are in the FMCG regime are in the lower tax bracket of 4-5 percent as an example.
Tomorrow, the question is whether we will go for a two rate structure or a single rate
structure, in my personal view, practically and politically, it appears it will be a two rate
structure.

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A Study On Impact Of GST On FMCG In India MMS (SEM IV)

History

The GST journey began in the year 2000 when a committee was set up to draft law. It
took 17 years from then for the Law to evolve. In 2017, the GST Bill was passed in the
Lok Sabha and Rajya Sabha. On 1st July 2017, the GST Law came into force.

Before the Goods and Services Tax could be introduced, the structure of indirect tax levy
in India was as follows:

Under the GST regime, the tax is levied at every point of sale. In the case of intra-state
sales, Central GST and State GST are charged. All the inter-state sales are chargeable to
the Integrated GST.

The Indian FMCG sector is the fourth largest sector in the economy with a total market
size in excess of US$ 13.1 billion. Fast Moving Consumer Goods (FMCG) goods are
popularly named as consumer packaged goods. Items in this category include all

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consumables (other than groceries/pulses) people buy at regular intervals. FMCG is also
one of the fastest growing sectors among all the sectors in the Indian economy.

As per the current tax regime, FMCG has to pay many taxes like VAT, Service Tax,
Excise Duty, and Central Sales Tax. Once the GST law will be implemented it will cover
all the above taxes under one single point of tax in form of GST. The current tax rate for
the FMCG industry including all the taxes is around 22-24%. GST might be implemented
with the expected rate of 18-20 %.

It would be welcomed by all the major players in the FMCG industry. No input credit
was available for certain taxes like CST, CVD, and SAD under the current tax regime.
Whereas under GST, there would be input credit available for all the GST payments
made in the course of business.

Fast moving consumer goods (FMCG) is the 4th largest sector in the Indian economy.
There are three main segments in the sector – food and beverages, healthcare and
household and personal care which accounts for almost half of the sector. FMCG
Companies are looking to invest in energy efficient plants to benefit the society and lower
costs in the long term. Growing awareness, easier access, and changing lifestyles are the
key growth drivers for the consumer market. The focus on agriculture, MSMEs,
education, healthcare, infrastructure and employment policies by the Government also
have an impact on the growth of this sector. Since different products are taxed at different
rates under GST, on a macro level, the average tax and the final prices that the end
customer ends up paying have averaged out post implementation of GST, with some
products becoming more expensive (aerated beverages, shampoos etc.) and others
becoming cheaper (toothpaste, soaps etc.). As the retail sector witnesses unprecedented
growth, India has emerged among the most desirable retail destinations in the world.
Even though modern trade is growing at 15 to 20% per annum, it has a low organized
retail penetration of just 8%. Further, various infrastructural challenges remain. India’s
economic growth and its demographic profile make the country a compelling business

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case for global retailers planning an international foray. The strong economic growth is
attributed to high disposable incomes, growing middle-class influence, increasing
individual wealth and the country’s large young population. The untapped rural sector
and the lesser developed Tier II and Tier III cities provide ample opportunities for
growth. The liberalization of FDI in single-brand retail and the expected opening-up of
FDI in multi-brand retail have generated significant interest among multinational
retailers.

FAST-MOVING CONSUMER GOODS (FMCG) is goods that sell quickly and for a low
price. Consumer packaged goods is another name for these goods. This is one of the
industries that make a significant contribution to our economy. India is one of the largest
producers of FMCG products. The FMCG industry is divided into three categories. In
India, there are three main segments in the FMCG sector:

Household and Personal Care – 50%

Healthcare – 31%

Food and Beverages (F&B) – 19%

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Impact of GST on the Indian Economy

Six years ago, the GST was imposed on all sectors of life. Everything you buy goods and
services from the market, the final amount charged upon includes GST other than those
which do not come under the purview of GST. Here are some of the significant impacts
of GST on the Indian economy –

 Simpler tax structure

With the introduction of GST, the taxation system has become much simpler. Since there
is only one tax, the calculation is easier. As a result, the buyer gets a clear idea of the total
tax paid by him.

 More funds for production

Another major impact of GST on the Indian economy is more funds for production. The
total taxable amount has been reduced drastically, which fosters production.

 Increased volume of export

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When talking about the impact of GST on the Indian economy, custom duty on the export
goods has reduced drastically. As a result, the production units save a lot of money
during the production and shipment of goods.

 Support for small-size enterprises

GST is implied based on the size of the enterprise and the annual turnover. If the annual
turnover of an organization is 50 lakhs, it will pay 6% GST.

 Enhanced operations throughout India

With a single and unified taxation system in the country, it is easier to transport goods in
India. As a result, boosting transportation operations has increased.

GST has both positive as well as negative impact on the economy. It facilitates economic
growth by being transparent and creates loss over few sectors by the increased prices of
the commodity. But the ease of doing business has been helped by a unified taxation
system in the country. Thus, how GST is viewed in terms of the Indian economy differs
from one person to the other.

It is ideal to state that when studying about the impact of GST on the Indian economy, it
is ideal to note that both sides of the coin (pros and cons) need to be taken in account.
The primary objectives with which GST was introduced are:

1. Elimination of the confusion surrounding the number of indirect taxes that were
required to be paid by the taxpayers. This also involves removal of cascading
effects of taxes.
2. GST aims to increase the number of taxpayers in the nation which will help in
development of the nation’s economy.
3. GST was introduced with an object of weighing consumption-based tax
administration more than manufacturing tax administration.

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4. Promotion of a corruption-free nation and diminishing tax evasion rates are also
counted as objectives of GST.

The GST introduction had an impact on the Gross Domestic Product (GDP) of the nation.
The growth rate of GDP was 8.95%, which was a 15.54% increase followed by a latter
decline of 10.33%, 2.72% and 0.34% decline in 2019, 2018 and 2017 respectively. We
can see a significant growth in the GDP of the nation after the introduction of GST in the
nation, as is reflective in the following pointers below:

1. The various tax rates on a single transaction were removed and a uniform
taxation system was introduced by which tax implementation became
simplified. It seemed simple across the nation.

2. It reduced the cost of transactions. For example, initially there were more than
10 types of taxes that were levied on a single transportation. People were
burdened by this because of the different types of taxes that were levied on one
single transaction. People were facing problems and the business was not
expanding because of this.

3. After the introduction of GST, the tax payment got simplified and people were
encouraged to take up the business by paying a unified tax. Even though the
tax amount that was paid before and after GST did not have much difference it
felt simpler for people to pay a single tax in place of more than ten types of
taxes.
By this practice, more goods and services were manufactured in the country, because of
which exports also increased. If a country exceeds its exports it means that the country
has a trade surplus which signifies that the country has a high level of output of goods
from a country’s manufacturers by which the employment is increased. When the country
is exporting more it also initiates the funds flow into the economy thereby contributing to
the economic growth. The relationship between countries’ exchange rates will also be
valued. It indirectly increases the relationship between two nations and strong domestic
currency hampers exports and imports become cheaper. As the GST will concede all the
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other taxes the exemptions on various taxes for various transactions shall be removed.
This will in turn yield more income for the government. By this the GDP of the country
will also increase.

Positive impact of GST on the Indian economy

The positive impacts of GST on the Indian economy have been listed hereunder:

1. Simplified tax structure: Single tax and easier calculations of the same have
made GST provide India with a simple tax structure. The buyer upon paying
for the product purchased, gets a clear idea as to what amount of tax he has
paid.

2. Support for small and medium enterprises: It is to be noted that the GST
amount to be paid depends on the annual turnover of the firm, on the basis of
its size. This has been a reward for small and medium enterprises.

3. More funds for production: GST has been successful in reducing the total
taxable income thereby adding to more funds for production.

4. Enhanced operations throughout India: There has been a boost in operation

throughout India because of the single unified tax system, making it easier for
goods transportation across India.

5. Increased volume of export: Reduction in custom duty on goods has

facilitated a rise in the volume of export. Production units have also been
saving money while producing goods following the introduction of GST.

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Negative impact of GST on the Indian economy

The negative impacts of GST on the Indian economy have been listed down hereunder:

1. Negative impact on common man: GST being an indirect tax is recovered by

means of raising the selling price. This in terms affects the middle and lower-
middle class people and therefore has a negative impact on the common man.

2. Negative impact of GST on the real estate market: In general, firms

continue to face issues with input tax credit system thereby failing to manage
working capital requirements in an effective way. This is what led to GST
having a negative impact on the real estate market.

3. GST on unemployment: Following the implementation of GST (July-2017),

the unemployment rate had risen from 3.39 to 6.06 % during the period July
2017 to February 2018 in India. With business building being easier, self-
employment is on rise but only for those who can afford it.

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Types of GST
There are Four GST types namely Integrated Goods and Services Tax (IGST), State oods
and Services Tax (SGST), Central Goods and Services Tax (CGST), and Union Territory
Goods and Services Tax (UTGST). The taxation rate under each of them is different.

The new indirect tax regime under the Goods and Services Tax (GST) which was rolled
out on 1 July 2017, had witnessed a considerable amount of confusion over how the new
taxation system will affect businesses and the payment of taxes. The Goods and Services
Tax (GST) has subsumed several local taxes that were levied on goods and services.

Difference Between Types of GST

Priorit
Authority y of
Types Who is it collected Transactions which are applicable
which is Tax
of GST by? (Goods and Services)
benefitted Credit
use

Central CGST
CGST Central Government Within a single state, i.e. intrastate
Government IGST

State SGST
SGST State Government Within a single state, i.e. intrastate
Government IGST

Central
IGST Between two different states or a
Government
IGST CGST Central Government state and a Union Territory,
and State
SGST i.e. interstate
Government

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Union
UTGST Territory UTGST Union Territory (UT) Within a single Union Territory
/UGST (UT) IGST Government (UT)
Government

Types of GST and its Explanation

As per the newly implemented tax system, there are 4 different types of GST:

1. Integrated Goods and Services Tax (IGST)

2. State Goods and Services Tax (SGST)
3. Central Goods and Services Tax (CGST)
4. Union Territory Goods and Services Tax (UTGST)

Additionally, the government has fixed different taxation rates under each, which will be
applicable to the payment of tax for goods and/or services rendered.

1. Integrated Goods and Services Tax or IGST

The Integrated Goods and Services Tax or IGST is a tax under the GST regime that is
applied on the interstate (between 2 states) supply of goods and/or services as well as on
imports and exports.

The IGST is governed by the IGST Act. Under IGST, the body responsible for collecting
the taxes is the Central Government. After the collection of taxes, it is further divided
among the respective states by the Central Government.

For instance, if a trader from West Bengal has sold goods to a customer in Karnataka
worth Rs.5,000, then IGST will be applicable as the transaction is an interstate
transaction. If the rate of GST charged on the goods is 18%, the trader will charge
Rs.5,900 for the goods. The IGST collected is Rs.900, which will be going to the Central
Government.

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2. State Goods and Services Tax or SGST

The State Goods and Services Tax or SGST is a tax under the GST regime that is
applicable on intrastate (within the same state) transactions. In the case of an intrastate
supply of goods and/or services, both State GST and Central GST are levied.

However, the State GST or SGST is levied by the state on the goods and/or services that
are purchased or sold within the state. It is governed by the SGST Act. The revenue
earned through SGST is solely claimed by the respective state government.

For instance, if a trader from West Bengal has sold goods to a customer in West Bengal
worth Rs.5,000, then the GST applicable on the transaction will be partly CGST and
partly SGST. If the rate of GST charged is 18%, it will be divided equally in the form of
9% CGST and 9% SGST. The total amount to be charged by the trader, in this case, will
be Rs.5,900. Out of the revenue earned from GST under the head of SGST, i.e. Rs.450
will go to the West Bengal state government in the form of SGST.

3. Central Goods and Services Tax or CGST

Just like State GST, the Central Goods and Services Tax of CGST is a tax under the GST
regime that is applicable on intrastate (within the same state) transactions. The CGST is
governed by the CGST Act. The revenue earned from CGST is collected by the Central
Government.

As mentioned in the above instance, if a trader from West Bengal has sold goods to a
customer in West Bengal worth Rs.5,000, then the GST applicable on the transaction will
be partly CGST and partly SGST. If the rate of GST charged is 18%, it will be divided
equally in the form of 9% CGST and 9% SGST. The total amount to be charged by the
trader, in this case, will be Rs.5,900. Out of the revenue earned from GST under the head
of CGST, i.e. Rs.450, will go to the Central Government in the form of CGST.

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4. Union Territory Goods and Services Tax or UTGST

The Union Territory Goods and Services Tax or UTGST is the counterpart of State
Goods and Services Tax (SGST) which is levied on the supply of goods and/or services
in the Union Territories (UTs) of India.

The UTGST is applicable on the supply of goods and/or services in Andaman and
Nicobar Islands, Chandigarh, Daman Diu, Dadra, and Nagar Haveli, and Lakshadweep.
The UTGST is governed by the UTGST Act. The revenue earned from UTGST is
collected by the Union Territory government. The UTGST is a replacement for the SGST
in Union Territories. Thus, the UTGST will be levied in addition to the CGST in Union
Territories.

Impact of GST on FMCG Sector

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The Indian FMCG sector is the fourth largest sector in the economy with a total market
size in excess of US$ 13.1 billion. Fast Moving Consumer Goods (FMCG) goods are
popularly named as consumer packaged goods. Items in this category include all
consumables (other than groceries/pulses) people buy at regular intervals. FMCG is also
one of the fastest growing sectors among all the sectors in the Indian economy.

As per the current tax regime, FMCG has to pay many taxes like VAT, Service Tax,
Excise Duty, Central Sales Tax. Once the GST law will be implemented it will cover all
the above taxes under one single point of tax in form of GST. The current tax rate for the
FMCG industry including all the taxes is around 22-24%. GST might be implemented
with the expected rate of 18-20 %.

It would be welcomed by all the major players in the FMCG industry. No input credit
was available for certain taxes like CST, CVD, and SAD under the current tax regime.
Whereas under GST, there would be input credit available for all the GST payments
made in the course of business. There are some impact regarding FMCG :

1. Reduction in Logistics Cost

FMCG sector would also benefit from GST in the form of saving a considerable amount
of expenses on logistics. Distribution cost of the FMCG sector currently amounts to 2-7%
of total cost, which is expected to drop to 1.5% after implementation of GST.

Due to the smoother supply chain management, payment of tax, claiming input credit,
removal of CST under the GST regime there will be a cost reduction in terms of
transportation and storage of goods. It is expected that the reduction in cost and taxes
would make the consumer goods cheaper.

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2. Stock Transfers

Stock transfers outside the State will be subject to GST. It is unclear whether stock
transfers within the State will also be subject to GST. It is to be noted that the GST
framework was intended to tax only inter-State stock transfers and not intra-State stock
transfers. 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. As stock transfers
do not have a consideration, this provision cannot be implemented. In addition, GST
valuation rules provide that if the transaction value is not available then the value for the
good/service would be considered as the transaction value of good/service of same kind
and quality.

Impact of GST on MRP of Goods and Services

The Goods and Services Tax (GST) has replaced the majority of India’s indirect levies.
Before the introduction of the GST, companies were forced to pay tax at every point of
the supply chain. The product’s price rises as a result of the cascading effect. However,
under GST, a taxpayer can claim an input tax credit for the purchase of raw materials.
This decreases the cascading effect on the product’s ultimate price/MRP.

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What exactly is MRP (Maximum Retail Price)?

Every product has a maximum retail price labeled on it. It is the highest price set by
producers for a certain product before its sale in India. Retailers are not permitted to
charge customers more than the MRP. The maximum retail price indicated on a product
includes all applicable taxes.

Since the implementation of GST in July 2017, there have been several modifications to
the tax rates on various items. As a result, the maximum retail price may rise or fall.
However, under GST, a taxpayer may be unable to receive ITC in certain circumstances.
Prices do not fall in such instances. Because of the adoption of GST and the ongoing
revision of GST rates, it is necessary to adjust the maximum retail price.

For example, with the implementation of GST, the prices of FMCG items are decreased
to pass on the benefits of the lower GST rate and the ITC advantage.

Effect of GST on Whole Supply Chain

The practices before the GST used to give less weightage to operational efficiencies
because the main focus used to be how to reduce the state level taxes for sourcing and
distribution in Supply chain. Their options would always revolve around the trade-off
between Interstate or Intrastate procurement of goods, In-house manufacturing and
contractual manufacturing, direct sales vs stock transfers etc. Adding on to that they also
had to bear a variety of taxes like VAT, Entry tax, Service tax, Central Sales Tax etc.
which added on to a lot of problems. Primary advantages that India possesses as a low
cost manufacturing base used to get nullified due to the taxation structure.

The introduction of a unified system of GST is beginning to simplify the whole regime to
a very great extent. By removing state taxes that had a cascading effect, the logistics
companies are being encouraged to aggregate their warehouses instead of the old practice
of opening one in each state to avoid Central Tax. This brings the full cost of the product
down because the inventory and inventory carrying cost gets reduced which in turn

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affects the final cost of the product bringing the selling price down. The saved cost can be
used by companies to further improve serviceability.

After the implementation of GST, the design of the supply chain is now based on the
customer service and logistics cost. Smaller warehouses earlier being used can now be
merged with bigger warehouses eventually solving the space problem by optimal
utilization. Moreover with this the demand forecasting process can be made much robust,
accurate and flexible.

Further benefits enjoyed by the companies are:

 Hassle-free sourcing of raw materials from different states.

 Better price options.

 Improved forecasting process and Inventory Management.

 Capacity Expansion and space optimization.

 Flexibility in manufacturing.

The cost of Raw materials constitute a major part of the cost of the product and most of
the companies try to minimize the procurement cost because it can have a significant
impact. Earlier there was no policy of tax credit for inter-state procurement in the tax
form but with introduction of GST, cross utilization of Input Tax Credit (ITC) is allowed
in Interstate supply of goods, moreover the additional amount given as customs duty in
the import of goods is brought to end by GST. As a result inter-state sales transactions
become tax neutral making the processes easier. As a result many decision making
questions like Inter vs Intra procurement of goods, consolidation of suppliers, choice of
Import vs Local raw material vendor does not require much emphasis.

With this the procurement strategy has moved from taxation focus to focus on time and
quality with a shift from producer state tax focus to consumer state tax focus along with
the redesigning of specific processes.

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 Proper editing and formatting

 Free revision, title page, and bibliography

 Flexible prices and money-back guarantee

Effect of GST on Freight and Transportation

In the pre-GST era most companies being highly cost conscious tended to trade off future
efficiency for current cost which reduced the scope of the usage of professionally
managed fleets. With the advent of GST there are new ranges of possibilities for them:

 There will be a greater role for professional 3rd Party Logistics Professionals which can
bring about much needed consolidation and expertise into the freight and transportation
segment.

 GST can also reduce the time wastage at the interstate borders which in turn will be
helpful in reducing transit and lead time.

 Since the interstate transactions are tax free in post-GST era, Replenishments can be
made quickly from other states and hence reducing the average Inventory.

 Scope of Cross docking techniques is definitely increasing.

In the Pre-GST era, the transportation was based on the Central Sales Tax and varied
state value added taxes. But in the post-GST era, the tax is levied at the central level and
the state value added taxes does not have any impact. The tax rates are uniform across all
the borders and state boundaries are no longer the parameter for deciding the routes.

In post GST era, the location of warehouses and their transportation networks is
eventually turning out to be critical because the infrastructure for rail, road or multimodal
strategy needs to be strong which requires well in advance planning to build an agile,
efficient and futuristic and sustainable supply chain model. GST is enabling the

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warehouses to be larger in terms of capacity, with this the transportation lot sizes
automatically increase, resulting in the usage of larger and more efficient trucks.

Effect of GST in 3PL and 4PL Logistics

With the effect of GST, there is a bigger chance for Third Party logistics service
providers to enter the market. Third Party logistics service providers can manage these
bigger routes as in India covering north to South and make delivery process accurate and
efficient. The 3PL logistics firms are constantly transforming from traditional service
delivery systems to sophistically integrated and hi-tech service providers competing to
meet the service demands. The focus of supply chain management is shifting from
avoiding tax to reducing overall supply chain costs and asset returns, while developing
the core competencies and creating customer centric network structures. The share of
3PL, 4PL providers rise further. The most important thing is that with GST, logistics
sector has got infrastructure status which will create tremendous growth.

An opportunity in various supply chains is as below:

 The infrastructure of logistics is gaining importance over the location of the plant under
GST regime. New opportunities for outsourcing are being created in services like carrier
services and forwarder services.

 In the post GST regime, the sales and distribution models of the firms is undergoing
change which is opening new opportunities in warehouse management and distribution
operations leading to increase in outsourcing.

 In the aftermarket, customer service will shortly drive outsourcing in claims management
as a value added service.

Effect of GST On Inventory Management And Warehouse

In the GST regime, logistics companies can have one central warehouse or can go for
warehouses at specific locations or can even adopt the unique and efficient hub and spoke
model. With one country one tax, companies will have the ability to achieve cost

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reduction in their operations and in turn can transfer this cost benefit to the end consumer
in the supply chain. Moreover, Companies can now consolidate the stock at their
warehouses and demand fluctuations at a particular warehouse are also reduced to an
extent. This in turn improves demand planning and results in an improved inventory
management.

GST can help the Decision Makers or the top management in making the decision
process much easier regarding the Warehouse and Inventory management policies. Some
of these decisions may include:

 Decisions regarding planning of Warehouse Locations and Depot Locations considering

the existing Plants and the markets locations and subsequent demands.

 Choice of the Warehouse Capacity and Depot Capacity which will make the planning of
Safety level Stock and Reorder points much clearly visible.

 Decision Making related to decision of Replenishment cycle, Safety Stock, Milk Runs
which are considered the inventory etc.

 No. of Distribution centers can be reduced and service level can be improved due to
flexibility in interstate goods movement.

Big Scale regional logistics park can be constructed now to revamp the logistics
infrastructure with latest technology. It increases the possible to combine with other
players in stocking the products. Hence the holding costs will reduce to a greater extent.
Larger warehouses would make investments into ERP and automation systems used for
racking goods making it more meaningful and financially prudent.

Effect of GST On Manufacturing Sector

GST is helping create numerous possibilities for the manufacturing sector in the
following ways:

 There will be extended flexibility in vendor selection process, as the location of vendor
will no longer be a constraint as it used to be before.

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 Discontinuation of all area based excise exemptions and SEZ related exemptions.

 Auto component manufacturers setting up production units close to OEM plants for VAT
credit chain can now be avoided after GST.

 Tax incentives will be provided equally in all states, as result new plants can be opened in
any of the states which will boost up employment and decrease polarization.

 Stocking of Pharma goods at Union territories can now be avoided after GST. Initially,
due to Tax exemptions, Pharma companies were stocking their products in Union
territories and in SEZs.

Effect of GST on Retail / FMCG Sectors

Over the years FMCG companies have tackled the old tax regime by developing a chain
of Clearing & Forwarding agencies (C&FA agents) in each state. Goods were transferred
to the C&FA without a title transfer thereby avoiding the incidence of Central Sales Tax.
But as a fact it is also true that stock movement to smaller distributors is also difficult
from long distances. For instance if we consider UP, considering the large size of the
State, most FMCG companies would need to develop 3 or 4 C&FA’s to cover the state
effectively especially if they are trying to covering smaller markets.

 Larger warehouses would make investments into automation, racking systems and ERP
systems will prove to be a prudent choice. For larger warehouses, transportation will also
become more efficient and cost effective with the use of larger vehicles for stock
replenishment.

 This will help ensure visibility over the levels and make it easier to integrate processes
for sharing data such as demand changes, current inventories, optimal transportation
routes, etc.

 After GST C&FAs can now become bona fide third-party logistics providers. Moreover,
customers’ demands for more value added services will boost the adoption rate of
technology solutions such as warehouse management systems and track-and-trace
offerings.

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 A Study On Impact Of GST On FMCG In India MMS (SEM IV)

 There will be flexibility of differential pricing policy making it possible that the numbers
of C&FA’s may come down to certain level. For example if interstate servicing of
distributors has not got tax implications, a C&FA at Ghaziabad may be strategically be
used to service both Delhi and Uttarakhand locations in addition to UP West circle.

Effect of Exclusion of Products from GST

With the introduction of GST, the State’s authority for levying State taxes and exercise
duties has ended and has caused an impact on state revenues. To avoid the situation of
State revenues getting severely impacted, some products like Tobacco, Alcohol for
human consumption and Petroleum products etc. have been kept out of GST bracket. The
effect of keeping petroleum products out of GST can be seen clearly that it is not
benefitting the transportation costs of companies, instead of reducing it, it is adding up to
the costs and moreover it is defeating the sole purpose of implementation of GST.

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