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No Consensus On Why Consumer Goods Demand Rose After GST

No Consensus On Why Consumer Goods Demand Rose After GST

Consumer goods makers’ volumes jumped as the supply-chain emerged from the initial disruption of goods and services tax. There’s no consensus on why. Makers of soaps to biscuits say lower GST tax rates drove higher demand. But distributors and retailers aren’t sure if that was the trigger and attribute it largely to recovery after the twin disruptions of demonetization and GST.

Wholesale demand had slowed as distributors pared inventory ahead of the July 2017 rollout of GST, fearing losses on leftover stock. Starting three months ended September 2017, sales volumes of consumer goods makers have grown for six straight quarters. The GST Council, the apex decision-making body under the new law, in November 2017 reduced the number of fast-moving consumer goods attracting the highest 28 percent tax rate from 224 to 50.

That brought a host of products including shampoos, soaps and detergents, and deodorants and perfumes in the 18 percent tax bracket. The companies were supposed to pass on the benefit to consumers by lowering prices, not by offering more weight in the same pack.

“If prices come down, people tend to consume more and we have seen a consumption trend in the last one or two years after GST implementation,” Sunil Duggal, chief executive officer at Dabur India Ltd., told BloombergQuint. The consumption has been fairly robust after the instability caused by demonetisation and in the run-up to GST, he said. “We’ve seen around one year of good growth.”

“I don’t think there has been an underlying consumption boom, but the fact that people have to spend less to buy the same product has accelerated consumption.”
Sunil Duggal, CEO, Dabur India

Mayank Shah, category head at Parle Products Pvt Ltd., said lower taxes increased demand for its products by an additional 4-5 percent. Customers have largely been loyal to existing products such as namkeen and rusks, he said.

Distributors See No Such Trend

But distributors and retailers said lower prices didn’t create additional demand. The volumes jumped more on a lower base as the demand had slowed first because of demonetisation and then GST, four distributors and three retailers told BloombergQuint—none wanted to be identified out of business concerns.

A retailer in Maharashtra said consumption has grown organically and not because of rate cuts. A distributor from Mumbai said 2018 was a year of growth, which can’t be attributed to rate cuts. His counterpart from southern India said demand was growing at its historic pace. According to a distributor in Gujarat, prices of goods were down only in the first six months, and now they are higher by 5 percent on average following multiple hikes by companies.

Moreover, distributors said, some consumer goods makers increased grammage instead of lowering prices. Market leader Hindustan Unilever Ltd. and Nestle India Ltd. face anti-profiteering penalty for not lowering prices. While HUL got a stay from the Delhi High Court and voluntarily deposited Rs 90 crore, Nestle said it provisionally deposited the amount that it had set aside.

Premiumisation Vs Formalisation?

A distributor in Punjab told BloombergQuint some consumers upgraded to premium products. If a person typically bought four bars of soap, his consumption will not go up, he said, adding that the rate cut made him to buy a more premium brand. But he agreed with his counterparts in other regions that there hasn’t been an overall uptick in consumption because of GST.

A retailer from Nagpur said there are instances of customers buying higher-priced items after GST rate cut. But, he added, fast-moving consumer goods makers have also been pushing premium products in smaller packs.

Dabur’s Duggal agreed that there was a higher demand for smaller packs, citing the example of shampoo sachets selling at Re 1 each. “It is deeper penetration and a higher level of consumption (driving demand),” he said. “I don’t see any premiumisation.”

Instead, there’s a shift from products like tea and biscuits sold loose to packed, branded items, he said. Smaller packs account for 20-30 percent of consumption, and in some categories, lower GST rates has made that formalisation possible. Even in the larger packs, deep discounting after GST rate cuts has improved offtake. “In oral, skin and hair care, it has been quite positive.”

Saugata Gupta, chief executive officer at Marico Ltd., pointed to a similar trend in an investor call. Formalisation of the economy after GST would help increase demand for branded soaps, detergents, household cleaning products, and coconut oil, he said. “Companies will need to ensure direct distribution to compete with smaller regional players.”

Suresh Narayanan, chairman and managing director of Nestle India Ltd., also doesn’t see premiumisation because it’s more a brand strategy. But he has a more nuanced view on volume growth—it can be attributed to a mix of everything.

“The overall sectoral growth of FMCG has been fairly encouraging,” he said. “The momentum in the market was good in 2018. Not that GST alone pushed it, he said, but it aided that.

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Source: Bloomberg Quint
Extend loan restructuring scheme to MSMEs not yet registered under GST

Extend loan restructuring scheme to MSMEs not yet registered under GST

The MSME sector on January 2 demanded the RBI’s loan restructuring scheme be also extended to the companies not yet registered under the goods and services tax and called for restoration of priority sector lending tag for such enterprises.

The Reserve Bank of India (RBI) on January 1 allowed a one-time restructuring of the existing debt of up to Rs 25 crore for the companies that have defaulted on payments but their loans have continued to be classified as standard assets.

“It would have been far more effective if the scheme covered all MSMEs, GST-registered or not, as a large number of units are adversely affected due to delays in payments owing to stressed economic conditions as a result of twin shocks of demonetization and GST,” said Federation of Indian Micro and Small & Medium Enterprises Secretary General Anil Bhardwaj.

To be eligible for the scheme, the aggregate exposure, including non-fund based facilities of banks and non-banking finance companies, to a borrower should not exceed Rs 25 crore as on January 1, 2019, and the restructuring has to be implemented by March 31, 2020.

“Obviously, this is going to boost the MSME sector. We have also requested the prime minister to give relief to MSMEs whose loans have turned non-performing assets (NPA) or are on the verge of turning NPAs in the last one year,” MSME Development Forum Chairman Rajnish Goenka told PTI.

The restructuring of loans will help micro, small and medium enterprises (MSMEs), which are facing cash crunch in the wake of demonetisation and the GST implementation.

“While schemes like 59-minute portal for credit of up to Rs 1 crore and 2 per cent interest subsidy show the government’s intent in addressing the sector’s concerns, the need of the hour is some big steps including restoring priority sector lending tag for MSMEs and specific incentives to disruptive fintech sector to lend more to the sector,” said R Narayan, founder and chief executive officer, Power2SME.

Assocham termed it as a significant measure which will help improve competitiveness of this critical sector and said the move will play a pivotal role in further reviving the ecosystem for small businesses and create an enabling business environment.

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Source: Money Control
June PMI shows economy rebounded from demonetisation, GST roll-out

June PMI shows economy rebounded from demonetisation, GST roll-out

The Nikkei India Composite Purchasing Managers’ Index (PMI) for June 2018 came in at 53.3, its highest level since October 2016.June PMI shows economy rebounded from demonetisation, GST roll-outThe Composite PMI is a snapshot of private sector activity in the economy, a seasonally adjusted index that includes both manufacturing and services. A reading above 50 indicates expansion from the preceding month, while one below 50 denotes contraction.

October 2016 was the last month before the twin blows of demonetisation and the goods and services tax (GST) beset the Indian economy. The fact that the composite PMI is now at its highest since October 2016 indicates that the economy has recovered its momentum.

The rebound was strong both in the services and manufacturing sectors, with the manufacturing PMI at 53.1 and the services PMI at 52.6. New orders and staffing levels have improved. Those surveyed said they saw increased demand for their products and services.

The PMI surveys also show that input costs have risen sharply in both manufacturing and services sectors. While output prices too have increased, their rate of increase is much less than for input prices.

That is an indication that firms are facing margin pressures, as fuel and commodity prices rise.

Aashna Dodhia, an economist at IHS Markit, wrote: “The PMI data signalled the best improvement in the overall health of the economy since October 2016, propelled by solid growth in both the manufacturing and service economies, with the sharper rise in the former. However, overall input costs rose at the strongest rate since July 2014, and amid a weak rupee and higher oil prices, inflation may remain elevated. Given these circumstances, the chances of further monetary policy tightening have heightened.”

It’s interesting that despite robust growth, animal spirits seem to be drooping. In the services sector, the Business Expectations sub-index, a gauge of business confidence, was in June 2018 at its lowest since last October, when teething troubles with GST were rampant. The Future Output sub-index, a yardstick of sentiment in the manufacturing sector, was also in June at its lowest since last October.

This divergence between present conditions and future expectations could be due to two factors: 1) pessimism about headwinds affecting the macro picture in future, such as higher interest rates, higher oil prices, a weaker rupee, higher inflation, a higher fiscal deficit, trade wars and political uncertainty; and 2) concerns that margin pressures would affect profitability. If sustained, the lower business sentiment could affect investment demand, if companies decide to postpone capital expenditure.

Source :  Livemint
Indian economic growth: IMF pegs India growth at 7.4 % for FY18-19

Indian economic growth: IMF pegs India growth at 7.4 % for FY18-19

The Indian economy is expected to grow at 7.4 per cent in the current fiscal and accelerate further to 7.8 per cent as it recovers from the impact of demonetisation and Goods and Services Tax (GST) rollout, the International Monetary Fund (IMF) said on Wednesday.International Monetary Fund (IMF)

Asia continues to be the main engine of the world’s economy, accounting for more than 60 per cent of global growth – three-quarters of which comes from China and India alone, as per IMF’s Regional Economic Outlook: Asia and Pacific (REO).

“But there are risks and challenges ahead, including from a tightening of global financial conditions, a shift toward inward-looking policies, and – over the longer run – population aging, slowing productivity growth, and the rise of the digital economy,” it said.

Asia is expected to grow at 5.6 per cent this year and next, it said, adding that the outlook was supported by strong global demand, as well as still accommodative policies and financial conditions.

“In India, growth is forecast to rebound to 7.4 per cent in FY 2018/19 as the economy recovers from disruptions related to the currency exchange initiative and the rollout of the new Goods and Services Tax,” it said.

China, IMF said, was projected to grow at 6.6 per cent in the current year that will moderate to 6.4 per cent next year.

GST: Economy Growth

Explaining low inflation

Noting that present rates of inflation in Asia were some of the lowest in decades, it said, it had seen some upward movement since September 2017 on the back of rising oil prices.

“But core inflation – which excludes food and energy – remains low and below target in many economies. In 2017, headline inflation on average was 0.6 percent lower than target in Asian advanced economies, and 0.8 percent under target in Asian emerging market economies,” it said.

The latest report explores why inflation has been so low. And it finds that first that temporary global factors, including commodity prices and imported inflation, have been key drivers of low inflation. But these factors could reverse, and inflation could rise.

According to the report, inflation has become more backward-looking, meaning that past inflation drives current inflation more than future expectations. This suggests that if inflation rises, it may persist.

“Further, there is some evidence that the sensitivity of inflation to economic slack has decreased [i.e., the Phillips curve has flattened], suggesting that if inflation rises, there may be a large hit to output when reducing it,” it said.

All of these mean that central banks should watch out closely for signs of inflation pressure now and stand ready to respond.

Source: The Hindu
Demonetisation, GST led to formalisation of economy: FM Arun Jaitley

Demonetisation, GST led to formalisation of economy: FM Arun Jaitley

Goods and Services Tax (GST) led to the higher formalization of the economy resulting in higher direct tax revenueArun Jaitley : GST and a greater number of income tax return filings, finance minister Arun Jaitley said on Tuesday.

“The impact of demonetisation and GST implementation has resulted in the higher formalisation of an economy. This is further substantiated by the filing of more than one crore (new) income tax returns by taxpayers during FY 2017-18 in comparison to FY 2016-17,” Jaitley tweeted.

According to the data released by the Finance Ministry on Monday, 6.84 crore returns were filed during 2017-18, significantly higher than 5.43 crore filed in the previous fiscal.

Arun jaitley twitter

“Direct tax collections for FY 17-18 has been Rs 10,02,607 crore (18 % higher than the previous year),” Arun Jaitley added.

“The data reveals the efficiency of the tax department and a rise in the number of honest taxpayers. This historical revenue receipt is a factual testimony of accountable governance under Prime Minister Narendra Modi,” he said.

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GST and real estate: Govt needs to address grey areas, disputes and litigations; take feedback from realtors, say experts

GST and real estate: Govt needs to address grey areas, disputes and litigations; take feedback from realtors, say experts

GST and real estate

Much has been discussed, argued and debated on demonetisation and the Goods and Services Tax (GST) implementation at various forums including election campaigns. Opposition parties slammed both the moves of Prime Minister Narendra Modi, though the latter managed to hit headlines on Thursday again after the Pew Research Centre’s survey announced him as ‘very popular’.

Without taking names or giving political colour, a panel discussion on ‘Dialogue on demonetisation, GST and the built environment industry’ organised jointly by RICS School of Built Environment, Amity University and National Institute of Urban Affairs (NIUA) on Thursday evening (16 November) in New Delhi, attempted a threadbare analysis of the impact of demonetisation and GST on the real estate sector.

In his inaugural presentation, noted economist Arun Kumar, Malcom S Adiseshiah, Chair professor, Institute of Social Sciences pointed out that the present form of GST was not ‘full GST’ as it kept real estate, alcohol, electricity and petroleum out of its ambit. “Now, if tax to GDP ratio rises, it’ll give rise to inflation. As a result, demand will fall and the rate of growth (will) decrease, which is contrary to what GST promised. The small and unorganised sector has been ignored and this sector can’t deal with GST due to its complexities. While demonetisation has put the economy on the downslide, the GST implementation has aggravated the condition. The poor have been marginalised in the process. Demonetisation and GST are the two big shocks,” he remarked.

On the possible impact of demonetisation on large real estate projects, Prof Kumar said demonetisation had resulted in decline of growth rate and GDP, and rise in deficit. “As the government won’t like fiscal deficit to go up, the demand in the sector will go down.”

Responding on a positive note, Arun Gupta, partner, SARC Associates said, “Demonetisation to some extent has led to an increase in tax compliance at present.” However, he mentioned, “GST in theory is a good system, but the way it was promised and projected during implementation, the government lost its way. There is a big lag between the plan and the outcome.”

Is demonetisation just a blip or has it had a much deeper impact on the economy? In response, Prashant Agarwal, partner (Indirect Taxes) at Pricewaterhouse Coopers said, “It was a shock therapy. Even after one year, we fail to know the significance of demonetisation or even implementation of GST. If we talk about these two actions or reforms, while PM Modi gained a Robin Hood image, the economists including former PM Manmohan Singh mentioned it as ‘shocking impact’. ”

Jagan Shah, director, NIUA observed, “Lack of implementation of policy interventions has impacted the sector. I don’t believe it’s a blip per se; but it’s a sign for a paradigm shift.”

Arun Kumar said that theoretically demonetisation won’t tackle black economy. “Demonetisation has hit investment and output. Credit off-take has declined. These are long-term effects. Investment can revive, once capacity utilisation picks up. Both public and private sectors have to boost investment, but it’s a Catch 22 situation.”

Gaurav Gupta, director, SG Estates Limited observed that after two decades people might not remember demonetisation, but it temporarily sucked up cash from the system. The move came as a shock and its biggest impact was on the unorganised sector. Probably, demonetisation wasn’t required, especially when government was implementing the GST.

Summing up the first round, panel moderator and associate dean and director, RICS School of Built Environment, Amity University, Sunil Agarwal said, “It’s not a blip as in the long-term people would remember the impact of demonetisation.”


Has GST adversely impacted the real estate sector? Panellists unanmously opined that while the intention of GST was good, its implementation and rates led to more confusion. They suggested that the government needed to address the grey areas,  disputes and litigations bothering the real estate sector by taking feedback from the realtors.

The government wanted the entire real estate sector under GST, but it’s half-done, which has been due to the states, said Prashant Agrawal, adding, “There’s an issue of distrust between the Centre and the states as far as revenue sharing is concerned. There are lot of legal issues in real estate sector. The players of this sector need to have a clear perspective and discuss their problems with the government on taxation. However, realising the problem, the government has brought down GST rates.”

In response, Gaurav Gupta said, “Real estate sector’s contribution to GDP is 9 percent and it is the second largest employment generator. The government has brought in lots of regulations, but there is an urgent need to improve the investment climate in this sector. Practical problems need to be resolved.”

Explaining the issue, Arun Kumar said, “There’s a need to simplify the process and bring real estate, liquor and petro fully under GST. This will help the sector. But there’s pressure from the states to keep them out and the Centre couldn’t handle it.”

While, the panellists delved into the pros and cons of note ban and GST, there were voices from amongst the audience who questioned the credibility of real estate players. Many shared the view that the decline in growth in the real estate sector started in 2012 — much before demonetisation and GST implementation —because of low credibility.

“Implementation of GST hasn’t contributed much to the slowdown in the real estate sector. Before GST, there was service tax. In fact, barring a few developers, the credibility of a majority has been questionable. They defaulted on the promises they made to their customers. Even banks refused extending credits. Despite taking money from home-buyers, the builders failed to deliver flats. It badly impacted the sector. The need of the hour is to regain confidence of the government, customers and financial institutions,” remarked Captain Vipul Choudhary, a retired army official and director, Olive Green Realty — a real estate consultancy firm.

Former HUDCO CMD, PS Rana questioned why land had been made unaffordable for the masses. “In any project, land cost is the real culprit. For example, a developer buys land at Rs 1 crore from a farmer, but by the time he begins construction, the price shoots up to Rs 10 crore. This makes entire project costlier.”

Moderator Sunil Agarwal said, “The demand in real estate sector is there but it’s in segments. Now, a lot of corporate houses have entered, making the sector more organised. It’s giving credibility to the sector as well.”

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Source :  First Post
Note ban, GST impact behind us, growth in sight: FM Arun Jaitley

Note ban, GST impact behind us, growth in sight: FM Arun Jaitley

Arun Jaitley : GST

Finance Minister Arun Jaitley said today that the impact of structural reforms is “behind us” and the early economic indicators point to an improvement.

Structural reforms like demonetisation and the rollout of the Goods and Services Tax  (GST) would have had some consequences but they will help the economy, in the long run, he said.

“Having undertaken two major structural changes which are extremely important for the Indian economy, I think the impact being substantially behind us, the early indications for the future look to be positive,” he said at the India Today Conclave here.

In the last 2-3 months the Purchasing Managers’ Index (PMI) data has come out positive, similar to industrial output and core sector growth, he said, adding that these are some of the early indicators and “probably point to an improved situation”.

Also Read: PM Modi indicates more relief measures at next week’s GST Council meet 

Prime Minister Narendra Modi had on November 8 last year announced the demonetisation of old Rs 500 and Rs 1,000 notes to combat corruption, black money, terrorism and fake currency.

On the criticism that note ban has impacted growth, Jaitley said: “If you don’t have the capacity or courage or broad shoulders to undertake those structural reforms, then, of course, that status quo would have continued.

“And the status quo ante that existed in India, I don’t think that is an ideal situation where India would have lived to be.”

Jaitley said India was a fast-moving global economy for three years in a row and the time was opportune to undertake structural reforms. “Otherwise, the only option to structural reform that my predecessor could give you is policy paralysis, not my choice.”

Also Read: GST council meeting: 24 states confirm participation

The economy slowed to 5.7 per cent in the April-June quarter of the current fiscal, the weakest pace since 2014 as demonetisation sucked out 86 per cent of the currency in circulation throwing cash-dependent businesses in disarray and the implementation of GST from July 1 hit small and medium enterprises.

The GDP growth had started to slip in the quarters before demonetisation, he said, adding that the manufacturing activity declined in the run up to the GST roll out from July 1 as businesses started destocking their goods.

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Source :  The Times of India
GST, NPA resolution to enhance India’s credit score profile, says Moody’s Investors Service

GST, NPA resolution to enhance India’s credit score profile, says Moody’s Investors Service


India’s key reforms including the impending Goods and Services Tax and sticky loan resolution is going to boost the country’s credit profile, Moody’s Investors Service said Thursday.

Moody’s said that the wide-ranging reforms, also including the improving fiscal framework following the Fiscal Responsibility and Budget Management Act (FRBM) recommendations will broaden the tax base and anchor fiscal consolidation.

“Under such outcomes, the government’s debt burden, a key constraint on India’s credit profile, would ease gradually,” the global firm said.

Moody’s report focuses on the potential credit impact of three key pending reforms: the GST, the fiscal framework following FRBM and NPA resolution measures.

“Recent government measures to address NPAs and the promulgation of the Insolvency and Bankruptcy Code 2016 are credit positive for the sovereign, as they provide a clearer framework for NPA resolution,” Moody’s said.

The NPA resolution measures are expected to materially reduce banks’ sticky loans burden and, as a result, growth financing should take a positive turn. Until NPAs are resolved, banks’ ability to finance potential investment will be constrained.

The report said that short-term impact of GST will be muted, but benefits will accrue over medium term. “The long-term benefits will include higher productivity growth, due to efficiency gains in business operations, greater investment as interstate tax barriers are reduced, enhanced tax compliance and an expanded revenue base.”

GST is likely to be implemented from July 1 2017.

Demonetisation and financial inclusion efforts will also help broaden tax base, while expenditure reforms enhance spending efficiency. The Aadhaar identification system will reduce fiscal leakage, Moody’s said.

Implementation of medium-term fiscal framework would help guide government debt lower. The FRBM framework offers an opportunity to anchor fiscal consolidation by setting a medium-term target for the debt burden.

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