A Tough Call: GST could mean the end of many local brands

GST could lead to many local brands going off the shelf
 Ajita Shashidhar   New Delhi     Print Edition: June 18, 2017
A Tough Call

Santosh Gold, a popular soap brand in rural Gujarat has over the years built a strong network of retailers in and around Vadodara and Anand who try their best to push the brand. Despite having leading brands such as Lifebuoy or Santoor on display, when a consumer would ask for a Rs10 soap, the retailer would give him Santosh Gold. Similarly, Bapi Chanachur a popular namkeen brand in Bengal, has more takers than Haldirams and Bingo in most kirana stores. The Indian consumer goods industry is flooded with many such local brands. For every Videocon or LG TV, there would be a Melbon or Hilton TV trying to attract the consumer's attention. These brands play the volume and price game. A Rs5 pack of Bapi Chanachur would have 15 grams of namkeen against 12 gms in a Bingo. Similarly, a flat-screen Hilton TV would be priced at Rs7,500, against around Rs12,000 for Videocon.

 

Once GST is rolled out in July, these local brands could come under pressure. Being local brands, they either don't come under the local tax bracket or end up evading taxes. Moving from paying no taxes to paying 18 per cent under GST for soaps and 28 per cent for televisions could lead to several local brands wrapping up. "Local brands from now on would have to play on a level-playing field and I am not too sure if they will be able to do it," points out Debashish Mukherjee, Partner (Head, Consumer Practice), AT Kearney.

R.S. Sodhi, MD, Amul, agrees that many local brands that have never paid taxes would now be burdened. "Local companies rely on wholesalers for distribution where dealings are in cash. With the taxation structure becoming transparent, not only would local brands need to pay taxes, they will also need to set up a direct distribution set-up." Ghee, which earlier attracted around 5 per cent tax, will attract 12 per cent.


Marketers of leading consumer goods companies don't seem to be perturbed over the impact on consumption. Kamal Nandi, Head & Executive Vice-President, Godrej Appliances, says despite air-conditioners and refrigerators being in the highest tax slab (28 per cent), sales depend on weather. "This year the heat has been so intense that consumers are investing in air-conditioners even at the fag-end of summer. A slight increase in price will not change their buying decision."


"Costs may go up by 2-3 per cent in the short term. I doubt if any brand would pass on the increase to the consumer," adds Gunjan Srivastava, MD & CEO, Bosch and Siemens Home Appliances. ~

@ajitashashidhar

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