With the much awaited launch of GST (Goods and Services Tax) making all the headlines, there has been a lot of skepticism regarding its impact on the Indian economy. Although the economists are calling it one of the most conducive tax reforms of this century, views of traders & businesses are divided.Consumers are also anxious about how it’ll effect their lives. While FM ArunJaitely, has eased concerns by confirming that the new tax rates will be kept at the current levels to eliminate any inflationary impact, let’s look at what retailers and consumers can expect.
What has changed for the Retail Business?
The textile and apparel sector is a key contributor in Indian Economy. Its contribution tothe country’s GDP and exports is 6% and 13% respectively. The new GST structure will replace the existing indirect taxes with a fixed tax structure for each product category whichwill varyfrom 5% to 28%.For example, apparels costing less than Rs. 1,000 will bear a tax of 5%, while a 12% tax will be levied on the ones costing above Rs. 1,000. The textile manufacturing industry, which is at the bottom of the value chain,is welcoming the 5% GST rate,while the retailers’ are divided on the final price of products.
One thing is sure that this move will benefit non-premium brands which generate 80-90% of the sales from products worth less than Rs. 1,000. But the premium brands might take a hit.Having said that, loyalty of the customers to the brands will be a defining factor for both premium and non-premium brands alike. How brands engage their customers post GST will turn out to be one of the most important factors affecting their businesses.
What would be the impact of EOSS this year?
Last year’s Summer EOSS (End of Season Sale) didn’t end on a happy note with close to 5% drop in footfall and 2.5% dip in overall sales. This year the situation is pretty uncertain, mainly attributed to the higher taxes on premium products and competition from eCommerce players who’re already on a mission to lure customers through heavy discounting.
Though EOSS typically commences during the end of June every year, this year, most of the brands and even marketplaces such as Flipkart have already started the sale with full-fledged marketing to push-out their existing summer stock in order andmake place for the next season on their shelves. This suggests that this year’s End-of-Season-Sale could be a tough game for the retail players. Most retailers have increased the discounting from last year to get ahead of the competition.
Capillary Technologies’ internal study on the impact of GST on EOSS revealeda projected sales surge of 2-3% for most non-premium brands including hypermarkets where 80-90% sales come from products worth less than Rs. 1,000 while a proportional sales drop is expected for premium-brands where only 1-2% sales come from such products.
What does it mean for the consumers?
GST is poised to bring long-term benefits for consumers. Now, the customers won’t have to pay taxes-on-taxes which will bring down the price for most of the commodities and enhance product availability.
Just as howthere wasan initial disturbance after demonetization, but in the long-run it paved the way towards a digitaleconomy, GST’s impact in the coming times could be far reaching.According to IMF, GST has the potential to raise India’s medium-term gross domestic product (GDP) growth to over 8% and create a single national market for enhancing the efficiency of the movement of goods and services. Besides improving the ease of doing business, GST will also propel the job hiring by about 11% across the sectors (according to a study by TeamLease).
GST is one measure that can be a game-changer for the economy as it will not just help in curbing inflation but also the problem of tax-evasion from distributors who current bear the burden of indirect taxes. The benefits will follow the trickle-down effect and help the under-developed states of India. Change in the business world is inevitable and if the fruits are long-lasting then these changes should be embraced.
The article has been penned down by Ritesh who works as Senior Analyst in the QSR Business Vertical for Capillary Technologies, offering analytics services to brands like Pizza Hut and KFC in 10+ countries of EMEA.