With GST cuts, will FMCG companies now see volume growth?

Most companies expect the benefits to reflect in their December-quarter earnings. A combination of factors, such as the complete transition to lower GST rates, festival season buying through late October, and an above-normal monsoon this year, is expected to lift demand, especially in rural markets where consumers tend to be more price sensitive. Mint explores

Why is volume growth critical?

Most companies report both volume and value growth. However, over the last several quarters, volume growth has lagged value growth. This suggests that companies have had to raise prices due to higher commodity inflation, which helped drive sales growth. For instance, in the March quarter, NIQ reported that the FMCG industry recorded 5% volume growth, while value growth stood at 11%.

In the June quarter—the most recent data available from NIQ—volume growth rose to 6%, up from 2.8% a year ago, while value growth was 13%. Large companies such as Hindustan Unilever Ltd. (HUL) and Godrej Consumer Products Ltd. (GCPL) reported 4% and 5% volume growth, respectively, in the June quarter.

Which categories have seen a price reduction?

The government has moved to simplify the goods and services tax (GST) structure by merging the existing four slabs into two—5% and 18%—eliminating the earlier 12% and 28% rates. Products such as hair oil, shampoo, toothpaste, toilet soap bars, toothbrush, shaving cream, ice cream, tea, coffee, and biscuits will now attract 5% GST, down from 18% earlier.

Similarly, GST on butter, ghee, cheese, dairy spreads, jams, fruit juices, drinking water, namkeens, bhujia, and mixtures has been reduced from 12% to 5%.

So what gets cheaper for consumers?

If you have visited a grocery store recently, you may have noticed some price changes. Several large companies have passed on these benefits to end consumers starting Monday. While the savings may be as little as a rupee on small packs of crisps and biscuits priced at ₹5 or ₹10, consumers can expect greater savings on larger packs, such as ₹40 off on a one-litre pack of Amul ghee or ₹38 on a 340 ml bottle of Dabur shampoo.

Reliance Consumer Products has reduced prices on its staples brand Independence apart from ₹5 on milkshakes (250 ml now for ₹35) and ₹7 off on large packs of candies ( ₹100 to now ₹93). However, detergents and cosmetics have not been included in the revised list.

How will GST rates help with volume uptick?

With lower GST benefits being passed on to consumers, companies are now eyeing volume growth. This, along with an above-normal monsoon and range-bound inflation, could give consumers reasons to spend more. GCPL expects improvements in volumes going into the festival season, driven both by the direct reduction in GST and the additional disposable income it puts in the hands of consumers.

Revised GST rates positively impact 35–40% of its portfolio—particularly soap and shampoo. The soap category, which has been growing at about 2% a year over the last four to five years, is likely to inch up by a couple of percentages, the company said.

Companies anticipate some temporary challenges from the transition to revised GST rates in the September quarter, but remain largely optimistic about Q3. The industry recorded 3.5% volume growth in the September quarter of 2024. Snack maker Bikaji Ltd said it expects volume growth of over 12% in the second half of FY26, up from 8% in the first half, driven by GST-related benefits.

Coca-Cola bottler SLMG Beverages also anticipates a 2–4% improvement in volumes in the second half of FY26, following weak demand in the first half due to unseasonal rains. The company has reduced prices on bottled water and juice drinks.

Will this prompt a shift from unbranded to branded goods?

In addition to price cuts, companies expect GST reductions to accelerate the shift from unbranded to branded products. A significant share of India’s household essentials—particularly food—continues to be sold loose in unbranded packs. Currently, food accounts for about 60% of total retail consumption expenditure, with packaged food making up roughly 40% of that.

Analysts at Motilal Oswal said select categories such as crisps and biscuits could see greater movement from the unorganized to the organized segment, as lower GST rates narrow the price gap.