Indian Consumers Report Little Benefit from GST Rate Cuts Six Weeks Post-Rollout

Six weeks after the rollout of GST 2.0, which aimed to lower taxes on numerous goods and services, a significant portion of Indian consumers feel they have not received the expected benefits. According to a survey by Local Circles, encompassing over 53,000 consumers across 342 districts, 42% of packaged food buyers and 49% of medicine buyers reported no price reduction at the retail level. Despite GST rates for packaged foods being cut from 12% and 18% to 5%, and for many medicines from 12% or 18% to 5% (with some life-saving drugs going to 0%), the actual savings for consumers remain elusive.

The primary challenge appears to be the inventory of old stock. Retailers, especially small chemists and distributors, had purchased goods under higher GST rates. Selling these at lower prices mandated by the new tax structure leads to financial losses for them. Many of these traders, who may not be fully registered or operate under the composition scheme, struggle to claim input tax credit, making it difficult to adjust prices promptly. The All India Organisation of Chemists and Druggists has reportedly sought a grace period to clear old inventory.

In contrast, sectors like automobiles and consumer electronics have shown better compliance and consumer benefit realization. Approximately 47% of automobile buyers confirmed receiving full GST benefits, contributing to an 11% month-on-month increase in vehicle sales in October.

Impact: This divergence between policy intent and consumer experience can affect consumer sentiment, potentially impacting sales volumes for affected sectors like Fast-Moving Consumer Goods (FMCG) and pharmaceuticals. It also raises questions about the efficiency of tax reform implementation and supply chain management. (Rating: 7/10)

Difficult Terms: * **GST**: Goods and Services Tax. A unified indirect tax in India replacing multiple previous taxes. * **GST 2.0**: Refers to subsequent updates or phases of the Goods and Services Tax regime, including rate changes. * **FMCG**: Fast-Moving Consumer Goods. Products like packaged foods, beverages, and toiletries that sell quickly at relatively low prices. * **MRP**: Maximum Retail Price. The highest price that can be charged for a product in India, inclusive of all taxes. * **Input Tax Credit (ITC)**: A tax credit mechanism allowing businesses to deduct taxes paid on inputs from their output tax liability. * **Composition Scheme**: An optional tax payment scheme under GST for small businesses, offering simplified compliance but restricting ITC claims.