The decision to reduce Goods and Service Tax (GST) on a range of consumer goods and appliances will help bring down prices and boost spending on discretionary purchases. The move coming just ahead of the start of the long festive season has been welcomed by companies, who are hoping this will give their sales a big push. Investors also cheered the move, with shares of consumer durable makers, paint firms, shoe makers among others rising sharply.
The GST Council on Saturday cut rates on 88 items including vacuum cleaners, TV up to 68cm (27 inch), washing machines, refrigerators, paints and varnishes to 18 per cent from 28 per cent. The tax was also reduced on footwear priced up to Rs 1,000 to 5 per cent from 18 per cent, while the long pending demand for exempting sanitary pads from GST (currently taxed at 12 per cent) was also accepted.
“We welcome the reduction in the GST rates from 28 per cent to 18 per cent on appliances. This move ahead of the festive season will certainly bring cheer to consumers and lead to a spur in the growth of the appliances category,” said Dinesh Chhabra, CEO of Usha International.
The consumer durables market in India has seen single-digit growth over the last few quarters and the expectation now is of a extended period of good growth as prices will now come down post the GST rate cut.
“This should be a good boost to the industry and stoke demand. Hopefully, we would see good growth in consumer durables for the rest of the year,” said Mahesh Gupta, chairman of Kent RO.
Stocks of consumer durables makers, FMCG firms, shoes and paints rallied on Monday, as investors gave a big thumbs up to the GST rate cut. Crompton Greaves Consumer, Whirlpool, Voltas, Symphony and Bajaj Electricals rose 2 per cent to 6 per cent. Elsewhere, shoemakers Khadims, Bata India and Liberty Shoes jumped 6 per cent to 10 per cent. Asian Paints, Kansai Nerolac, Berger Paints and Shalimar Paints also gained 2 per cent to 4 per cent. The wider markets were also up with the BSE Sensex hitting a fresh record of 36,749.69 before closing at 36,718.60, up 222 points or 0.6 per cent.
“The broader implication of the GST changes is that, along with other reflationary fiscal measures already taken, they will further boost our overweight stance on consumption themes. One can expect reduction in GST rates to provide additional impetus to the upcoming festival season, and creating a positive consumer and household sentiment ahead of state elections,” said Dhananjay Sinha, head of research at Emkay Global Financial Services.
Several state governments have already announced farm loan waivers in the last year and the central government has announced a substantial hike in minimum support prices on kharif crops. This move to cut GST rates can be seen as a measure to address the middle class and small businesses now, added Sinha.
Even as consumption will get a boost, the GST rate cut will adversely impact government revenue.
“The reduction in rates is estimated to have an impact of Rs 6,000 crore to Rs 7,000 crore on government revenue,” said broking firm Motilal Oswal.
That shortfall could be partially offset by increased tax compliance and volume growth due to price elasticity of demand, it added.