Buyers Deferring Purchases Hoping For Lower GST Could Hit Festive Sales: Retailers

While Modi’s announcement has been largely welcomed, consumers are delaying their purchase decisions in the hope that prices will come down as a result around Diwali. This in turn has started to impact businesses, already reeling under the 50 per cent US tariff pressure. 

It will take some time to understand the full effect of the Trump tariffs on India's economy, but already, manufacturers and dealers of consumer goods and automobiles have begun demanding that the government expedite the announcement of the GST cuts it promised earlier this month. They said consumers are deferring their pre-festive season spending in anticipation of lower GST rates.

Recently, reacting to the announcement that the Modi government would cut and rationalise GST rates, Maruti Suzuki chairman R C Bhargava had welcomed the move, saying, "It is a much-needed reform. I think the whole country was waiting for it." 

This, despite showrooms of automobiles and consumer goods reporting a sales slowdown. In fact, dealers are worried that footfalls are not getting converted into sales, as was the case before the announcement.

“We want the government to expedite the new GST rates announcement, to give clarity to buyers. Else, we fear that the sales for the upcoming festive season will remain subdued,” warned a top office bearer of the Federation of Automobile Dealers Association (FADA). “Our representatives met Commerce Minister Piyush Goyal and requested him to clear the air as soon as possible. This will enable buyers to time their purchases,” he said. 

As of now, 28 per cent GST is levied on two-wheelers with engine displacement under 350 cc, and on cars with engine displacement up to 1,200 cc. There are hopes that the GST on two-wheelers, especially in the commuter category, and on four-wheelers (up to 1200 cc) will be reduced to 18 per cent.

The scenario is similar in the white goods sector. Businesses feel lower GST rates could bring more footfall to the showrooms, and catalyse purchases. Dealers complain that footfall has already dropped in the hope of cheaper purchases with lower GST.

“These days, walk-ins are more for enquiry, with the intention to buy only when the prices drop,” said a dealer of white goods, requesting anonymity. TVs with screens up to 32 inches carry an 18 per cent GST, while those above 32 inches carry 28 per cent GST. ACs are also taxed at 28 per cent.

Kamal Nandi, business head and EVP at Appliances Business of the Godrej Enterprises Group, said, “The proposed reduction in tax slabs will significantly help boost consumption and drive the demand for appliances. Currently, ACs are taxed at 28 per cent, and other appliances like refrigerators, washing machines, microwaves, etc, at 18 per cent. With rising temperatures, cooling appliances like ACs are no longer a luxury. They are now a necessity, and should be classified as such.”

He informed that the level of penetration of ACs in India is still low, at 9-10 per cent. Therefore, a reduction in GST on ACs, from 28 per cent to 18 per cent, could make it more affordable to the masses. 

A senior official of a prominent retail chain said that a reduction in GST on ACs is long overdue, but wasn't sure how far it would go to push sales. “AC manufacturers have not passed on the incremental expenditure, following regular revision of star ratings, and if GST is revised downwards, the entire benefit may not be passed on to the consumers to cover up the initial costs. Moreover, a reduction in GST is a small component of the total cost. There are transport and logistics costs, expenditure on labour, besides many other components. Considering this, the net impact of lower GST may not be as per buyers’ expectations,” he said. 

Retail chain major Croma declined to comment on a query over an email, while a request for information from another retail biggie, Vijay Sales, also did not generate any reply till the filing of this copy.