Impact of GST on FMCG Industry
The FMCG industry, anywhere in the world, has a direct association with everyday needs of end users.
But in India the FMCG sector is also an industry that has a fairly long tail of a supply chain from raw materials, product manufacturing to sale of an end product.
With GST effective from the 1st July, what will it mean for the FMCG industry?
Watch this video to find out!
I look forward to sharing with you our understanding of some of the massive changes that we see starting July 1st as GST rolls out in this country. And one of the key sectors which might get influenced dynamically is the Fast Moving Consumer Goods or FMCG space. As one can imagine, FMCG is an industry that touches the daily life of all the consumers and citizens around; and even from an industry or corporate point of view, it involves a massive amount of change for all the stake holders right from the point of the smallest suppliers to the point where few of those millions of outlets where your goods get stocked and eventually retailed out to the end consumer from.
Just to reflect upon what kind of changes that might entail, moving to GST is not just about getting adjusted to the new rates as a tax payer which of course is considered to be beneficial for the larger consumers end making it a welcome change as a sector for all the consumers; but from a state of preparedness or readiness point of view, it means a number of changes that the entire ecosystem needs to go through. Typically for an FMCG player, there are a large number of supplier elements involved. A number of them are today quite large and organised but this is probably one of those industries which has a long tail of suppliers which basically is referring to all their SME, MSME and even SSI units who at a central level and a regional level work with these FMCG companies to supply various goods and services. This will include right from their packaging and printing guys and other kind of logistic players involved. Likewise, on the distribution of the units that these companies manufacture and sell for each of these brands, there is typically a long chain of super stockiest, stockiest, distributors, and eventually the dealers or end retailers involved where itself there are a wide variety of players involved. If you look at the last mile outlets through which people go and buy FMCG goods, it includes modern trade bazaars to your community shops. If you look at their acclimatization to systems and electronic modes of data capturing or for that matter their practices for tax filing so far, it is quite easy to guess that not all of them were right up the curve. There are challenges in getting the last leg of retailers up the curve in getting them comfortable with capturing their data on a regular basis electronically. And this data refers to both their purchases and their sales. Sales to end consumers, what is known as B2C invoices in the GST parlance is not a big requirement as it can be filed as a report on a monthly basis. But specifically, on the purchase side to ensure that you capture all of your inputs accurately especially all of your purchases that you receive either form your distributors of goods from those or the wholesalers from whom you procure this goods from, because India’s distribution system is quite complex and one of the key pillars in the system (especially in the rural areas) are whole sellers who are the larger traders in those markets. So, the retailer now gets into the habit of capturing all of these records correctly every single time they are doing an inward of these goods; capturing the relevant details of these suppliers from their GSTIN numbers to the HSIN codes of each of these items.
Let me take a pause here. If you look at the on an average FMCG industry given the number of brands that operate in a diverse country like India, we are taking about thousands of SKU’s that have to be captured relevantly with regards to their HSN codes and tax rates applicable to each item as received from the respective suppliers.
One of the key requirements for this industry to step up and be GST ready is that their systems have to be put in place which will start with as good as having the basic hardware through which you can capture these basic data points and a very easy solution where that basic data can be converted into GST fillable returns. We clearly see an emergence of a certain number of players in this space which will help navigate retail distribution players on this journey towards becoming GST ready. And Vayana network itself is obviously quite keen to play a role in that space. We are working with a number of players who are eventually connecting with all these retailers in various capabilities, right from giving them technology solutions to enabling getting them easy solutions on tax filings.
IT and data readiness is going to be quite key. We believe that if this industry can move up the curve quickly, to which effect we can also see a lot of effort being put it by the government. Various industry and trade association today are carrying out seminars making retailers and shop keepers aware about what these changes will mean for them and how conveniently they can move up in this regime which once set will give them immense benefit because eventually the cost benefit is said to move to the end consumers and it should lead to an increased spend by consumers on FMCG goods. In that journey, we hope to play a role, in terms of enabling many traders and retailers through our partner service providers.