E-Paper
GST 2.0 will stabilise consumption, ease inflationary pressures: Dhairyashil Patil
The GST Council must devise some mechanism so that businesses can avail ITCs on inventories, Patil said.
The upcoming GST 2.0 reforms promise to reduce compliance burdens, stabilise consumption, and boost the economy, according to Dhairyashil H Patil, national president, All India Consumer Products Distributors Federation (AICPDF). The federation that represents over 450,000 distributors and 13 million kirana stores across the country is, however concerned that rate reduction may lead to huge loss of input tax credits (ITCs) on inventories. The GST Council must devise some mechanism so that businesses can avail ITCs on inventories, Patil said. Edited excerpts:
Q: GST 2.0 may reduce tax rates on several FMCG items from 12% to 5%. How do you view this development?
A: We extend our heartfelt appreciation to the government for its reform-oriented decision to rationalize the GST rate structure. This progressive step will stabilise consumption, ease inflationary pressures, and boost the local economy, while making Indian goods more competitive in global markets. This reform will reinforce India’s economic self-reliance and competitiveness. Lower GST rates on essential packaged goods such as butter, ghee, jams, and fruit juices will enhance affordability, particularly for rural and semi-urban consumers. This will directly boost demand and simultaneously strengthen Kirana stores and distributors. Tax cuts would reduce household expenditure, thereby contain inflation and support macroeconomic stability. Besides, simplified rates will reduce classification disputes, enhance transparency, and encourage greater compliance across the supply chain.
Q: What will be the impact on the AICPDF ecosystem?
A: One of the biggest gains of GST 2.0 would be relief from compliance burden. It has been long overdue because the complexities of GST filing with this number of rates (5%, 12%, 18%, 28% and cess) have been very difficult. This onerous task will reduce significantly. More relief from compliance burdens are expected from GST 2.0.
Q3: With 99% of items moving from 12% to 5% GST, prices of many FMCG products may drop suddenly. Will there be inventory losses?
A: It is a key concern. The transition of input tax credit (ITC) on closing stock is a matter of concern and we have flagged it with the government. Without adequate safeguards, distributors and retailers could face financial strain. We request a proactive framework to ensure the rightful credit of ITC so that trade partners are not unfairly burdened. Another concern related to any sudden announcement of rate reduction is potential disputes between the consumer and the retailer over pricing. Consumers would demand new rates and retailers having old stock would not be able to immediately reduce prices. As large volumes of goods are already present in the trade pipeline and at retail counters. Sudden rate changes, without directives, may affect margins, create disputes, and confuse consumers. The government [the GST Council] should devise some mechanism and clear guidelines to manufacturers on pricing and stock adjustments.
Q4: Is there a mechanism to ensure quick and fair transmission of rate cuts to the entire value chain?
A: We have requested the government to devise a mechanism for that. While rate cuts aim to benefit consumers, there is a risk that benefits may not flow uniformly through the supply chain, squeezing distributor and retailer margins. We proposed that the government should issue clear directives ensuring benefits are equitably passed on, safeguarding both consumers and trade partners.
Q5: AICPDF has approached the Competition Commission of India (CCI) against alleged anti-competitive practices adopted by quick commerce firms. What are the key issues and what is the progress of the case at CCI?
A: Yes, we have already submitted required documents and details to CCI against quick commerce platforms. They are indulging in predatory pricing, deep discounts and dark patterns detrimental for kirana stores. Their predatory pricing, anti-competitive practices and unethical ways saw over 2 lakh kirana stores close in the past. The impact is now more intense as over 10 lakh (over 1 million) kirana stores have been closed now because they could not match the deep-pockets and unethical ways of quick commerce. We have also written to the government that quick commerce platforms, operating through inventory-based models, could disproportionately benefit from the GST rate cuts, creating an imbalance with traditional trade. Safeguards must be designed to maintain fair competition and prevent price distortions.
