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Consumer firms and retailers are grappling with uncertainty over timelines of revised tax rate implementation, which, while coinciding with the festive period, has also crunched the shopping window. The festive season kicked off with Ganesh Chaturthi last week.
Many consumers have been holding back on purchases, with Prime Minister Narendra Modi announcing substantial rate cuts for goods and services tax (GST).
However, with the two-week Shraddh period — considered inauspicious for buying new things in some parts of India — beginning September 7, auto companies have written to the government, urging it to reduce the gap between the GST Council meeting (September 3-4) and the notification of the revised tax rates.
This is so purchase decisions are not stalled beyond September 22, when Navratri starts. For now though, there is a lot of uncertainty among both companies and distributors on how to build inventory to gauge and meet demand.
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Preparing for Sudden Surge
“For us, the Shraddh period, which lasts for 15 days, has figuratively extended to a month,” said an automobile dealer based in Delhi-NCR, who did not wish to be identified. On the other hand, the chief executive of a large snacks company said, “We are preparing for all possibilities. Backend work on wrappers for festive packs is done; we want to roll out the packs without even one day’s delay as soon as GST rates are announced.” Just so they are not caught unprepared by the sudden increase in demand, FMCG firms, television manufacturers and distributors, as well as logistics companies said they have informed trade channels they are doubling supply cycles to quick commerce and retail platforms. Besides, shorter and flexible dispatch schedules will be introduced to prevent stock-outs or delivery delays, and ramp up last-mile execution. Quick commerce platforms such as Blinkit and Swiggy Instamart, on their part, are setting up hundreds of temporary dark stores in densely populated neighbourhoods.“If rates are cut to 18% (from 28%), 10% input credit will be available with dealers that is usually adjusted against dealer margins. Since dealer margins are in the range of 3-4%, funds will get blocked for a very long period of time,” said the automobile dealer cited earlier. The dealer said customers were pausing purchases in anticipation of the price cut, but automakers also hope for asurge in sales once the revised GST rates are announced. “So while stocks are high in the channel, several carmakers are still pushing inventory, (since if) demand picks up suddenly, they will not be able to give us vehicles.”
Logistics Matter
Executives of logistics and delivery companies said strategic stocking closer to the sales window would be crucial. “This festive season is witnessing a compressed demand cycle, with muted early-season demand followed by expected surge in consumer activity shortly after the GST reforms are finalised,” said Vineet Agarwal, managing director of the listed commodity and supply chain management company Transport Corporation of India. “This requires agile supply chain planning and robust last-mile execution. We are preparing for this shift by working closely with consumer durables and auto companies to ensure flexibility in dispatch schedules and inventory management.”
Auto Route
“There is enough stock in the market because demand has been muted the last few months. Now that customers are expecting a reduction in car prices, conversions have slowed down,” a senior executive at a leading carmaker said on condition of anonymity. “Almost all carmakers have written to the government to fast-track the process so as to reduce the gap between the GST Council meeting and the notification of the revised tax rates on different categories of vehicles.”
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