Fast-Moving Consumer Goods (FMCG) companies in India are grappling with how to implement the recent Goods and Services Tax (GST) rate cuts, particularly for low-value products like ₹5, ₹10, and ₹20 packs. The GST Council's decision to reduce tax rates on many everyday items, effective September 22, 2025, has created both opportunities and challenges for the industry. While the intent is to pass on the benefits to consumers, companies are finding it difficult to reduce the retail prices of these small packs.

The Dilemma of Small Packs

FMCG companies argue that lowering the Maximum Retail Prices (MRPs) of ₹5, ₹10, and ₹20 packs would disrupt the widely accepted price bands in the Indian market. Consumers are accustomed to these round-number price points, and altering them might create inconvenience and disrupt sales patterns. For instance, a biscuit pack previously priced at ₹20 with 18% GST would technically need to be sold at around ₹18 with the new 5% GST rate. However, companies believe that pricing at ₹18 is not consumer-friendly.

The Preferred Solution: Increasing Grammage

Instead of reducing prices, FMCG firms are considering increasing the quantity of product in existing packs to justify current price points. This approach, known as increasing "grammage," allows companies to pass on the GST benefits without altering the familiar sticker prices. Rishabh Jain, CFO of Bikaji Foods, confirmed that the company will increase grammage in impulse packs—small packs that drive spontaneous purchases—to fully pass on GST benefits. For example, namkeen producers feel adding 5-10% more grammage to small packs is manageable. Similarly, other FMCG giants like Dabur have assured that consumers will benefit, though largely through larger packs rather than lower prices.

This strategy also helps companies avoid the costs associated with changing packaging and artwork, which can take four to six weeks. Moreover, it addresses the challenge of managing old stock with pre-printed MRPs based on the previous GST rates.

Challenges and Concerns

Despite the benefits of increasing grammage, FMCG companies face several challenges. One major concern is managing existing inventory that carries printed MRPs based on the current GST rates. Major players like Dabur, Amul, Emami, and Britannia are dealing with substantial stocks. Consumer goods companies have requested government permission to sell products with existing packaging at reduced prices to avoid wastage of packaging material worth over ₹2,000 crore. They have proposed informing consumers about the new prices through advertisements, website updates, and distributor notices.

Another challenge is the potential for "unintentional profiteering" by companies if they do not adequately pass on the GST benefits to consumers. While there is no formal mechanism to monitor this, the government has indicated it may introduce oversight if necessary.

Impact on the FMCG Sector

The GST reforms are expected to have both positive and negative impacts on the FMCG sector. Lower tax rates are expected to stimulate consumer demand in the long term. Biscuits and snacks segments are expected to benefit significantly, with tax rates dropping from 18% to 5%. This presents an opportunity for companies to expand their profit margins while passing on benefits to customers.

However, the transition period may see some market turbulence as companies adjust their pricing and inventory strategies. Distributors have indicated that retailers have slowed purchases from manufacturers to avoid sitting on old stock for too long. The industry has requested a 30-day transition window to implement the changes and pass on the benefits to consumers.

Government's Role and Monitoring

The Central Board of Indirect Taxes and Customs (CBIC) and the Finance Ministry are closely monitoring the situation to ensure that companies pass on the benefits of the GST rate cuts to consumers. The CBIC will monitor price changes for six months. The government may issue guidelines to prevent companies from retaining undue profits.

Overall, the GST rejig presents a complex scenario for FMCG companies. While they are committed to passing on the benefits to consumers, they prefer to do so by increasing pack sizes rather than reducing prices on low-value products. This strategy helps maintain familiar price points, manage inventory, and avoid packaging changes. The government is expected to play a crucial role in ensuring that consumers receive the intended benefits of the GST rate cuts.