While MSMEs may be drowning in hidden overheads, sectors like auto manufacturers and FMCG have reasons to be pleased with gifts GST has given them.
It’s not all bad news when it comes to the Goods and Services Tax (GST). While micro, small and medium enterprises (MSMEs) may be drowning in hidden overheads, industries like auto manufacturers and fast moving consumer goods (FMCG) have reasons to be pleased with the hidden gifts GST has given them. NDTV looked into case studies and the numbers to find how each sector is handling the year-old tax regime.
Indikala, a four-year-old, one room business, was growing steadily, with a 260 per cent jump in turnover from the first year to the second. This year, Indikala grew a mere 8 per cent.
Owner Neil Gadihoke says his costs have gone up everywhere – from sourcing handicrafts from GST registered, and therefore more expensive, artisans, making Rs. 82 or Rs. 88 on every 100 earned instead of the Rs. 95 he was getting earlier, to even paying more for necessities like the chartered accountant.
“My chartered accountant’s fees have gone up three times,” said Mr. Gadihoke. “He used to file returns once every quarter, now he files them 16 times, and then the additional headache of that website, compliances, I think he is justified.”
The courier service is also charging him six per cent more, thanks to the GST. With profits flatlining, Mr. Gadihoke has started taking tuition classes, and is considering closing down the business if things don’t change soon.
However, for auto manufacturers, the dog days are over. Auto accounts for a massive 50 per cent of manufacturing in India, and 7 per cent of GDP (gross domestic product). Taxes have actually gone up for this sector, but the GST has still pushed auto prices down.
“In a sector like auto manufacturing, we get parts from different states, and every time these parts would cross state borders, the taxes would get embedded in the price,” said Sugato Sen, the deputy director general at the Society of Indian Automobile Manufacturers. “Now with the clean up thanks to GST, these have been removed, and we have been able to pass on those savings to customers.”
And happy customers mean happy businesses. After hovering between 3.5-7 per cent from 2012 to 2017, domestic sales growth for the auto sector shot up to 14 per cent in 2017-18. While price cuts amounting to lakhs for luxury cars drew flak for passing GST benefits to the rich, the highest growth came in sales came for commercial vehicles, with a 25 per cent jump in sales for light commercial vehicles alone. In the passenger vehicles category, Maruti Suzuki (13.8 per cent), SkodaAuto (26.8 per cent) and Tata Motors (21.9 per cent) all showed a healthy growth in sales.
FMCG makes up one of the fastest growing sectors in the country. When the GST was first implemented, FMCG companies complained that it was above the effective rate in the pre-GST era, as it did not account for production in excise free zones. In November last year, however, the government revised GST on most FMCGs down from 28 per cent to 18 per cent. Companies say these benefits were immediately passed on to the consumers – making goods such as detergents and toothpastes cheaper.
But this, too, pushed up sales. Sales growth for FMCG giant Godrej went from 4 per cent in 2017 to a whopping 10 per cent in 2018. For Dabur, the uptick in sales was over 3 per cent.
While growth in sales cannot only be attributed to the GST alone, large companies admit that the new tax regime has definitely been a positive influence. As the GST network grows, and compliances and refunds become simpler, MSMEs hope they can draw on these benefits as well.
