Small traders, neighbourhood kirana stores and retailers were left struggling with uncertainty over how to price existing stocks on the first day of the revamped Goods and Services Tax regime, even as consumers descended in search of bargains.
Several shopkeepers have yet to receive updated price lists for products already on shelves. The issue is particularly acute in the fast-moving consumer goods (FMCG) and essential commodities segment, where tax rates have been slashed to zero or 5 per cent. Many small traders, who previously paid 12 per cent GST on their stock, now find themselves without clarity on how to recover the difference.
“All the items you see in this shop are with higher GST rates with old MRP. They will be sold at the old rate. Once companies send us new stocks with lower MRP, prices will drop,” said owner of Jagadamba Store on Lake View Road in Calcutta.
“The problem is more critical for traders under the GST Composition Scheme, where by design there is no input tax credit available. This situation is creating financial distress for lakhs of traders, for whom a portion of the working capital is at the risk of being permanently lost,” said Sushil Poddar, president of the Federation of All India Vyapar Mandal and Confederation of West Bengal Trade Associations.
The composition scheme offers simplified compliance for small manufacturers and traders with a turnover of below ₹1.5 crore, requiring them to pay GST at a fixed rate of 1 per cent of total turnover. But with the sudden transition, these traders have little leeway to absorb losses.
Garment stores
The situation is similar for garment stores who are either selling existing stock at old prices or offering a discount of around 7 per cent on garments priced below ₹2,500, on which GST has been lowered to 5 per cent from 12 per cent earlier.
“There are over 3,000 garments available in the store at present from multiple brands and we are yet to get an updated MRP from the companies. Hopefully it will arrive soon as the customers are asking how much they are getting as GST discount,” said the store manager of a multi-brand clothing retail outlet in central Calcutta.
Electronic retailers
Electronics retailers are slashing prices despite confusion over procedural rules. “We are offering new GST rates on stocks even with old MRP.
“TVs and ACs display both old and new prices to highlight the drop. For now, we are taking the hit of selling at lower prices. But with Durga Puja and Diwali ahead, we are focusing on clearing inventory and boosting sales,” said Khushboo Khoshla, director (sales & marketing) at Khoshla Electronics.
Industry observers said the switchover will take time.
“For small retailers, the first point of contact is their distributors. The companies are still in the process of revising their prices and it may take a few more days for things to stabilise. It is not realistic to expect everyone to pass on the full benefit on the very first day,” said Manish Gourisaria, chairman of the retail and marketing council at MCCI.
Some companies are already pushing through changes. Sudhir Sitapati, MD and CEO of Godrej Consumer Products, said, “We have been working through the night to get the transition ready and we have started issuing the first invoices this morning.”
To ease the transition, the Ministry of Consumer Affairs, Food and Public Distribution has issued directives (dated September 9 and 18) allowing re-stickering of existing stocks. Manufacturers, packers and importers have been permitted to revise prices through stickering or by offering discounts, with a mandate to communicate changes to the public and the Legal Metrology Department. Retailers may also affix stickers on existing stock, provided they have authorisation from suppliers.
The government has emphasised that it expects India Inc. to pass on the benefits of rate cuts to consumers, while mandating monthly reports on price changes before and after the GST rationalisation.
“There arises doubts in a situation of transition, i.e. when at the crossroads of switchover from one rate regime to another... Even if there are some crevices, the various instructions can be constructively interpreted and administered by trade and industry,” said Ranjeet Mahtani, partner, Dhruva Advisors LLP.