FMCG prepares for challenges under lower GST

With the GST on key FMCG products slashed to 5% from September 22, the industry is preparing for a major transition. Companies are grappling with old stock printed with higher MRPs and are urging the government to allow sales at discounted prices to prevent waste worth over ₹2,000 crore. While brands like Parle and Amul plan campaigns to pass on benefits, the sector stresses that clear rules are needed to ensure a smooth shift to lower GST rates for consumers and businesses alike.

FMCG companies across India are grappling with a pressing challenge as they prepare for the implementation of the revised Goods and Services Tax (GST) structure, which comes into effect on September 22. While the reform promises lower consumer prices and stronger demand, it also presents immediate operational hurdles for companies that are sitting on vast inventories printed with MRPs under the existing tax regime. With stocks lying in warehouses and on retail shelves across the country, the sector is urgently seeking clarity from the government on how to manage the transition without incurring heavy losses.

Industry leaders agree that the reduced GST rates on fast-moving consumer goods will stimulate consumption in the medium term. However, they acknowledge that the shift could disrupt operations in the short run, given the large volumes of stock carrying MRPs inclusive of the earlier, higher tax rates. The core concern is how to align this inventory with the revised rates without generating waste or absorbing steep financial hits.

To address this, companies have requested that the government permit the sale of existing stock with current packaging but at discounted prices that reflect the new tax regime, even after September 22. Industry bodies argue that this approach would help avoid discarding packaging materials worth more than ₹2,000 crore that have already been produced and pre-printed with the old MRPs. They have also assured authorities that consumers will be clearly informed about revised prices through advertisements, website updates, distributor communication, and point-of-sale messaging.

Letters from industry associations to the Ministry of Finance and the Department of Consumer Affairs underline the scale of the issue. Companies typically hold two to three months’ worth of inventory, which translates into millions of units across the supply chain. Re-stickering or relabeling each item, they caution, would be impractical, prohibitively expensive, and time-consuming.

“For any established brand that maintains an inventory cycle of a few weeks from factory to retail outlets, a sudden rate cut does present operational challenges, especially with existing stock already printed with the previous tax-inclusive MRP. We are actively working on aligning our pricing, communication, and packaging strategies to ensure transparency and compliance while minimizing losses. In the long run, we believe the GST reduction will boost consumption and positively impact the entire industry ecosystem,” said Gopal Punjabi, Head – Sales & Marketing, Karachi INC.

At the heart of the matter lies the extensive reliance on pre-printed packaging materials, which industry executives argue cannot be discarded without creating massive waste. Companies have therefore requested an extension to continue using existing packaging until new materials with revised MRPs can be rolled out. Although these concerns have been raised formally, the sector is still awaiting an official response from the government.

The tax cuts themselves are substantial, with the GST on butter, cheese, and confectionery reduced to 5% from 12%. Other widely consumed items such as chocolates, biscuits, cornflakes, coffee, ice cream, bottled water, hair oil, soaps, and toothpaste have seen their rates slashed from 18% to 5%. This sweeping reduction is expected to lower consumer prices significantly and drive a surge in demand once the transition is complete.

Leading FMCG firms are already working on strategies to pass on the benefits. Parle Products has confirmed to the Times of India, that it intends to reflect the lower GST through reduced prices but is carefully planning the roll-out to avoid waste and manage costs effectively. Dairy cooperative Amul also told TOI, which operates one of India’s largest distribution networks with nearly 30 lakh retail outlets, that is faces a different challenge. Much of its retail base functions under the composite GST scheme without input tax credits, making the immediate transmission of benefits to consumers more complex. To bridge the gap, Amul is preparing mass and social media campaigns to advertise revised prices while also offering discounts on older stock to ensure that consumers start experiencing the benefits before fresh stock reaches the shelves.

In addition to these measures, the industry is urging structural changes to ensure smoother transitions in the future. Companies have called on the government to revive the practice of rounding off MRPs to the nearest rupee or 50 paise, which they believe would simplify billing and make price adjustments more transparent. They are also proposing that promotional mechanisms such as buy-one-get-one offers and increased grammage be formally recognized as valid means of passing on tax benefits to consumers. Such flexibility, they argue, would enable them to strike a balance between managing inventories and meeting consumer expectations.

The cost of packaging adds urgency to these demands. For most FMCG categories, packaging accounts for 10 to 15% of the overall cost of goods, depending on size, category, and brand positioning. Discarding packaging worth thousands of crores would not only create waste but also deal a financial blow to companies already operating in highly competitive, low-margin markets.

As the September 22 deadline approaches, the FMCG sector stands at a crossroads. On one hand, companies are preparing to pass on the benefits of lower GST through reduced prices and value-driven promotions. On the other, they are awaiting government guidelines that would enable a smoother transition without disrupting supply chains or eroding profitability. The coming weeks will prove decisive in shaping how effectively the industry can adapt to the new tax regime while ensuring that both consumers and businesses share in the gains of this landmark reform.

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FAQs

1. What does the lower GST on FMCG products mean for consumers?
It means everyday essentials like biscuits, chocolates, soaps, toothpaste, butter, cheese, and bottled water will now be taxed at 5% instead of 12% or 18%, making them cheaper over time.

2. When will consumers see reduced prices in shops?
The new GST rates take effect from September 22, but prices may not drop immediately as old stock printed with higher MRPs will still be in circulation for a few weeks. Discounts and promotional offers may bridge the gap until fresh stock arrives.

3. Which FMCG products are affected by the GST cut?
Products such as chocolates, biscuits, cornflakes, coffee, ice cream, bottled water, hair oil, soaps, toothpaste, butter, and cheese are included in the GST reduction.

4. Why won’t all products get cheaper right away?
Many companies and retailers hold two to three months of inventory already printed with higher MRPs. They are waiting for government approval to sell this stock at discounted prices instead of discarding it.

5. How will companies pass on the GST benefits to consumers?
Brands are planning price cuts, discounts on old stock, promotional offers (like buy-one-get-one), and media campaigns to inform consumers of the new prices.