GST cuts will free up household budgets and lift FMCG demand

I would like to thank the government. Both the income tax cut and the reduction in GST across the board will spur consumption. Demand has been soft for a few years, but we have no doubt that this combination of measures will boost growth across sectors. I say this not just for Godrej Consumer, but also wearing my CII FMCG hat.

At Godrej Consumer, the main benefits will be felt in soaps, which account for about 35% of our business. The category has grown volumes by around 2% annually over the last four to five years. With the GST cut, growth may rise by a couple of percentage points.

More importantly, because soaps account for a significant share of household expenditure at the bottom of the pyramid, the savings will free up money for consumption in other categories as well.

One of the advantages of GST rationalisation is that the benefit extends beyond categories where rates have been cut. Even products that have not seen a reduction are likely to see stronger sales, as overall disposable income rises. We are therefore bullish not just on soaps, but across our portfolio.

There will, of course, be some short-term disruptions. The FMCG sector operates on an MRP regime, and stocks currently with dealers reflect higher MRPs. Simply passing on money to the trade does not guarantee it reaches consumers directly. It will take a little time for new MRPs to flow into the market.

Also read: Will the GST rate cuts boost ad spends this festive season?

By early or mid-next month, consumers should start seeing reduced prices on FMCG products. September may be somewhat choppy with pipeline changes and stock adjustments, but this is temporary. From the December quarter onwards, we expect stronger growth momentum.

This is a meaningful and material change for a large part of our portfolio and for the sector as a whole. I believe the current fiscal will now be better than what we had previously envisaged. While near-term factors such as heavy rainfall in parts of the country did cause some disruption, the GST changes will have a far greater impact on shaping demand in the months ahead.

In terms of consumer behaviour, we expect three effects. First, there will be a modest increase in consumption of essentials such as soaps and hair oils, though these categories are not highly elastic. Second, because essentials account for a large share of household budgets, lower GST will free up money for other goods. Third, as seen during the first wave of GST, much of the unorganised sector that evades taxes will either be forced into the net or lose competitiveness. This strengthens branded players like us who comply with tax laws.

Looking ahead, while there are still variables such as raw material prices and pipeline adjustments, our earlier guidance of high single-digit revenue growth and double-digit EBITDA growth for FY26 remains on track. India margins are expected to move into the mid-20s in the second half of the year, and we will continue to assess the benefits of GST rationalisation as they play out.

Sitapati is also the chairman of the CII National Committee on FMCG.