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How Indian Biscuit Industry Is Experiencing Big Loss Due To GST

| Published on March 24, 2019

Fast-moving consumer goods or FMCG as we call it is the fastest and most powerful sector in the Indian economy. It is the driving force behind the current consumption based Indian sales.

In that sector, a major shareholder is the Biscuit Industry. They have an approximately ₹ 35000 crore value and play the role of a protagonist in the consumption sector. Companies like Britannia, ITC, and Parle control 69% of this market.

So now, imagine, if this branch of the FMCG sector drops its sales by just 1 percent points, that’s a ₹350 crore loss, in an instant.

The ‘not-so-expected’ reason!

The leaders of various top Biscuit companies are currently blaming the GST tax regime and the advantage it is bestowing upon small and local biscuit manufacturers and sellers. Also, how local sellers would prefer high margin non-branded products over branded ones when it comes to selling at their shops and hence not allowing the big brands to target their rural/local consumer base.

Basically, they are what could be called a low-cost, high retail and high-profit alternative to the products of big brands like Britannia and Parle. “Many players are not tax-compliant and have a low operating cost which helps give high margins to retailers who push brands mostly in rural areas”, said Mayank Shah, category head, Parle products.

What is the current GST structure?

The Biscuit Industry falls under the 18% slab of the GST regime. This not only increases the cost of the product but also increases tax regime, compliance costs and in this case, difficulty in competing with local sellers. Mayank Shah is one of the many who is looking for a tax cut to help the industry.

Biscuits are a staple and the most basic packaged food products in the country. Rate should be reduced to 12% so that it can be effectively passed through price-cuts, which in turn, will boost consumption and make it level playing field,” said Varun Berry, managing director at Britannia Industries, the country’s largest biscuit maker.

The Impact

The Biscuit Industry has been seeing a weak growth rate recently. Contrary to popular belief, about the positive impacts of GST and easing tax burden, the industry grew by 12% last year which is slower than the 14% in the year before. Moreover, the problem is not only in this industry. Various local producers with unbranded and loose packaging have been eating away at the sales of vast spread, high output and employment generating branded companies. Sectors like Tea, detergents, soaps, and Biscuits seem to be the starting targets.

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