1. Comment
March 27, 2017

India’s GST reform: greasing the wheels for FMCGs

India’s GST reform, which aims to unify India into a single market, will greatly improve the ease of doing business for FMCGs.

By GlobalData Consumer

Legislation crucial to the rollout of the Goods and Services Tax (GST) in India has been passed by the Union Cabinet, allowing the bill to make its way to state legislatures for their approval. The successful passing of the GST, which may come as early as 1 July 2017, could boost India’s GDP growth by as much as 2%. And if successful, these reforms will streamline interstate trade for all businesses but especially for fast-moving consumer goods (FMCGs).

The GST is a national indirect tax regime that is designed to simplify administration and trade between India’s 29 states, effectively unifying India into single market. As it stands, inter-state trade faces different tax rates and models in each state, reducing freedom of goods and hampering economic growth.

The GST aims to solve several issues pertinent to FMCGs in India: variation in tax rates, variation in product categories, and the administrative complications stemming from decentralized tax collection. The Financial Express notes that “health drink is taxable at 5% in Maharashtra, while the same product is taxable at 12.625% in Kerala”.

"Trucks carrying goods sometimes spend days at state border checkpoints waiting for clearance from tax inspectors."

The administrative complications mean businesses struggle to navigate tax models and trucks carrying goods sometimes spend days at state border checkpoints waiting for clearance from tax inspectors. This variation in rates and product brackets creates a labyrinth for businesses seeking to sell products across India as well as for businesses with interstate supply chains.

Replacing these complex systems with a single tax regime would create clarity for FMCG businesses working across state lines and opportunities for those who wish to expand. It should allow interstate trade to pass unimpeded between states as it does in other single markets, effectively greasing the wheels of the Indian economy.