GST Rate Cut: Trade Goes Light, Consumers Delay Purchases For Past One Month

Chennai: In the past one month since the GST rate reduction was announced, the traders have been going light on inventory across categories. While the demand for low-value products has been steady at the consumer level, the sales of high-value discretionary items have remained dull in anticipation of GST rate cuts.

Products ranging from cars, and tyres to consumer durables and FMCG have seen slackening demand in the past one month.

In consumer durables like air conditioners, which have seen a GST rate reduction of 10 per cent, the purchases by the consumers have come down to nil. “Except the B2B customers, who can claim the input tax credit, the purchases have been zero after the announcement of GST rate revision as AC is a category where customers can wait for a month. B2B customers account for just 15 per cent of the sales. So, we expect a surge in demand after September 22,” said B Thiagarajan, MD, Bluestar.

The passenger vehicle sales were down 8.8 per cent in August, according to SIAM. Apart from recalibration of dispatches by manufacturers, weak consumer sentiment owing to deferment of purchases in anticipation of GST rate cut saw the vehicle sales come down. This also saw OEMs deferring tyre purchases. The replacement demand for tyres also saw a drop.

“Usually, Q2 is not a slow period, but we have seen slower inventory movement in the past one month. In the replacement market, especially in the commercial segment, which is highly price sensitive, there has been deferment of purchases. Unless it was necessary, replacements were postponed. The dealers also wanted to carry minimum inventory, and this affected sales at the manufacturer level. As auto sales were slightly down, the OEMs too were seen deferring purchases,” said Rajiv Budhiraja, Director-General of Automotive Tyre Manufacturers' Association.

According to him, after September 22 when there will be a surge in demand, logistics of tyres to the wholesalers and dealers will come under pressure and this will be a challenge for the manufacturers.

Being a low-value everyday essential category, FMCG has not seen demand coming down at the consumer level. But the traders wanted to go light on inventory. “The trade did not want to be saddled with old inventory. The wholesalers and distributors were trying to clear their inventory, and they stopped buying new stocks from manufacturers, except for what was required. This became evident more since the GST committee announced the new rates. The stocking has gone down by 30-35 per cent in the past one month,” said Mayank Shah, vice president, Parle Products.