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5% GST Levy: Packaged food items’ sales may see impact but demand curve to sustain

02 Jul , 2022   By : Monika Singh

5% GST Levy: Packaged food items’ sales may see impact but demand curve to sustain

The levy of 5% GST on unbranded food items will give branded players in the segment a level playing field, while not impacting the prices of products much as companies will get advantage of input tax credit and may not pass on the entire increase to the consumers.

Piruz Khambatta, chairman and managing director of Rasna and chairman of CII food processing committee, told FE that it is a welcome move as it will bring the branded and unbranded players in the segment on the same level, while not impacting the prices for consumers as much.

“The players will not lose out because inverted duty structure has been corrected and therefore they will be able to claim input tax credit, so the prices of products will not go up by a full 5% and could be to the tune of 2-3%,” he said.

He added that this will also bring in accountability to the unbranded players as the consumers will now know the source of the products that they are purchasing and will be good from the point of view of safety.

Effective July 18, pre-packed and labelled meat (except frozen), fish, curd, paneer, honey, dried leguminous vegetables, dried makhana, wheat and other cereals, wheat or meslin flour, jaggery and puffed rice (muri) will attract 5% GST.

According to retailers, the move may see some impact on demand in terms of volumes for the short-term, but will come back as consumption of essentials like food items will not be stopped. Devendra Chawla, managing director, Spencer’s Retail said, “The 5% GST on the pre-packed products might lead to minor impact on demand quantity but does not shift the demand curve.”

The move, say local retailers who also sell their own labelled products in their stores, will lead to additional stress on consumers in times of high inflation, and will impact their sales further. Suresh Nadar, director, AP Mani & Sons, a local retail chain in a Mumbai suburb said, “The levy of GST will add further stress because people have either stopped buying some products or are buying in lesser quantity due to rise in prices. Food items are essentials, so people may not stop buying completely but as the prices will go up, there will be an impact on demand in the short-term.”

However, industry associations said that the move will also prevent leakage in the system as several brands, even the well-known ones were deregistering themselves to take advantage of the exemption which was allowed on unbranded items.

Anil Bhardwaj, secretary general, Federation of Indian Micro and Small & Medium Enterprises (FISME) said, “Many companies would be using this loophole and would be just packaging the food products and selling it within their large shops without labelling it, so it is really a leak that has been plugged.”

He added that the move is unlikely to have a significant impact also because it does not affect rural markets as much which is more used to buying open or loose food items like wheat flour and rice etc and has a larger consumer base.

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