PM Modi says ‘GST savings festival’ begins: with lower prices, how household budgets are set for boost

Over the last few days, companies have gone on an advertising blitz to show how much they will be reducing the prices of their goods once the lower GST rates come into effect. The major announcements have come in the Fast Moving Consumer Goods (FMCG) space, especially for food items that are being exempted or falling in the 5 per cent GST slab.

Here’s what has become cheaper and by how much

Here’s what has become cheaper and by how much

Take, for example, Amul and Mother Dairy, who have reduced the price of a 200gm packet of paneer by 3 per cent to Rs 92 on account of paneer being made exempt from GST from a 5 per cent tax earlier. Milk in cartons, or Ultra-High Temperature (UHT) milk, is also set to be 3 per cent cheaper at Rs 75 per litre from Rs 77 for Mother Dairy, while for Amul, a one litre carton of Amul Milk Gold is now going to cost Rs 80 instead of Rs 83. Similarly, 200 gms of Amul butter khakra will now cost Rs 95 instead of Rs 100, while Amul cheese onion paratha will now be priced at Rs 200 instead of Rs 240 earlier after its GST was slashed to nil from 18 per cent.

The extent of the discount becomes greater for some other milk products such as butter (6 per cent cheaper for 100 gm) and cheese slices (6 per cent cheaper) due to the GST being reduced to 5 per cent from 12 per cent. The same cut is also effective for ketchups, ghee, pickles, and jams – all of which will now cost 4-8 per cent lower, as per company announcements. The biggest reduction, however, is for a 107 gm pack of Pringles chips. At Rs 110, the classic Pringles is going to be 12 per cent cheaper than before.

Kellogg’s has also announced similar price reductions for other edibles on whom the GST has been reduced to 5 per cent from 18 per cent. A 900gm box of Kellogg’s original corn flakes will now cost Rs 355, 11 per cent down from Rs 399, while Sunfeast Marie Light biscuits will be 12 per cent cheaper for a near-1 kg packet.

Ice creams, which saw their GST also being cut to 5 per cent from 18 per cent, are also set to be significantly cheaper. The most basic of these, the 50 ml cup in vanilla flavour, is now priced at Rs Rs 9 by Mother Dairy, down from Rs 10 before. Their 100ml Butterscotch cone, meanwhile, will now cost Rs 30, 14 per cent cheaper than before.

Food items apart, other household items like shampoo, soap, hair oil, and toothpaste have also moved to the 5 per cent GST category from 18 per cent, resulting in brands such as L’Oréal, Himalaya, Close-Up, and Dove announcing that prices will be now be 11-13 per cent lower.

Consumption boost

“This has been a big push moment for overall consumption demand,” economists from Bank of Baroda said in a report on September 10. “The real gain to consumers through lower inflation is significant. This opens more scope to even re-route consumption to savings and investment.” According to them, the GST rate cuts and the consequent price reductions will further improve demand across segments that have already seen some revival in the current fiscal.

Then there are some non-household items – but, nonetheless, very important to homes and the construction sector – which are set to be cheaper by around 10 per cent or so, such as cement. All the key cement producers, from JK Cement to UltraTech, have promised to pass on the full benefit of the GST reduction to 18 per cent from 28 per cent to buyers. Cement prices are particularly crucial for the country as construction of residential and commercial buildings is an economy in itself as they support several other sectors and professions than just real estate, such as Micro, Small, and Medium Enterprises (MSMEs) that make electrical and other components.

Another set of companies that have promised to pass on the full benefit of the tax reduction are insurance companies. With the GST Council on September 3 finally deciding that health and life insurance policies for individuals will be exempt from the 18 per cent tax, annual premiums could come down by as much as 15 per cent or so.

Durable goods are also expected to see a big cut in prices. Whirlpool, for instance, has already announced a reduction in the prices of its 1 tonne air conditioners by anywhere from Rs 4,509 to Rs 5,259, while dishwashers are set to be cheaper by Rs 3,282-Rs 4,336.

Then there are cars. The country’s largest carmaker, Maruti Suzuki, has announced that it will pass on the full benefit of the GST rate cuts. This has led to prices being reduced by Rs 46,400 to Rs 1.29 lakh across the manufacturer’s portfolio, with smaller variants, including hatchbacks and mini SUVs, seeing the sharpest cuts.

Small cars now attract a GST of 18 per cent, down from 28 per cent plus a cess earlier. Bigger cars will be taxed at 40 per cent as against 28 per cent and an additional compensation cess of 17-22 per cent, which took the total tax to 50 per cent in some cases.

To be sure, car manufacturers and dealers are in a bit of a pickle due to the tax cuts. While the GST overhaul has reduced the rates on several cars and also done away with the compensation cess, dealers who had requisitioned cars from manufacturers at the older rates have already paid the GST and cess on them. The same cars proved difficult to sell between September 3 and September 22 as customers were unwilling to buy them at the older rate. As a result, they have been offered at huge discounts, with estimates suggesting that they could be staring at losses of Rs 2,500 crore.