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Informist, Tuesday, Aug. 19, 2025

 

By Afra Abubacker and J. Navya Sruthi

 

MUMBAI – Prime Minister Narendra Modi's proposal to simplify the goods and services tax structure and have just two slabs of 5% and 18% aims to soften prices and boost rural and urban consumption. But while the reform is projected to lift demand for processed foods, its impact on staple commodities is likely to be limited and gradual.

 

Most essential commodities already attract nil or 5% GST. In addition, demand for these commodities is largely inelastic. Supply-side issues such as the monsoon, cropping patterns, and global demand and supply are also not affected by GST.

 

Devendra Vora, a trader at the Vashi market in Navi Mumbai, puts it bluntly: "There will be no impact on agri products. GST is just 5%, that too on packaged goods. If they reduce GST to 3% also, there will be no impact." Besides, there is a large, unorganised market for staples such as sugar, cooking oil, tea powder, and many other commodities which is, and will continue to remain, outside the purview of the tax.

 

By contrast, the fast-moving consumer goods segment may see a meaningful increase in demand due to the proposed GST rationalisation. FMCG items currently taxed at 12-18% are expected to move to the 5% slab, making them more affordable for price-sensitive rural buyers. Urban consumers may also raise their spending, which will support demand for premium foods and beverages.

 

Increased consumption of packaged foods could, in turn, propel demand for underlying commodities such as edible oils, sugar, grains, and dairy products. But this increase will vary, say experts. Dairy is seen as a winner with higher disposable income and growing health consciousness. Protein-rich paneer, cheese, and milk products are in a better position than snacks and aerated drinks.

 

"I think the GST factor will play a bigger role in just dairy demand," said Swapnil Karkare, freelance economist and podcaster. "Namkeen and, say, aerated drinks or other beverages, the market overall is smaller than dairy." While milk is exempt from GST, processed dairy products such as condensed milk, butter, ghee, and cheese all attract 12% tax.

 

According to analysts, essentials such as flour, cooking oil, and sugar are already taxed minimally, with a peak rate of 5%. Also, these staples have limited room for growth in demand. But processed foods such as branded snacks and beverages could see sharper growth as affordability improves.

 

Packaged sugar is taxed at 5%. However, products that have sugar added, such as cold drinks and ice creams, are taxed at 28% and 18%, respectively. Any cut in tax on these processed foods could boost their sales. Though the direct intake of sugar has been hit by rising health awareness, indirect intake of the sweetener has risen, especially in urban markets.

 

However, mandatory warning labels on packaged foods and beverages with high sugar, fat, and salt content are beginning to challenge the growth in consumption. "So these things make dairy a more promising sector in general," Karkare said. Nevertheless, a cut in GST on aerated drinks and ice cream is likely to boost industry demand for sugar. The upcoming festival season will see the usual spike in demand for several commodities, including sugar and edible oil.

 

Though the dairy segment seems better positioned in the FMCG basket, G.K. Sood, chairman, MEIR Commodities, says most essential commodities are "complementary" to one another in the processed foods segment. The bread, biscuits, and snacks segment is a heavy consumer of grain, edible oils, and sugar.

 

However, Sood also said India's edible oil pipeline is tight and prices are firm. High edible oil prices could "neutralise" any benefits from a cut in GST, he said. All eyes are now on the GST Council, which is expected to take up the proposed changes next month.  End

 

Edited by Rajeev Pai

 

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