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Below the Quote on GST rate cuts augur well for consumption by Amit Agarwal, SVP- Fundamental Research, Kotak Securities

The GST council has approved GST rate rationalization to a two-rate structure (standard rate: 18%, merit rate: 5%) from a 4-rate structure (5%, 12%, 18%, 28% + cess) and introduced a special de-merit rate of 40% for select goods/services (cigarettes, CSD). The GST rate for almost all food items (biscuits, instant noodles, nutrition, namkeen, instant coffee, chocolates, ice cream, fruit juices, sauces and cheese) has been cut to 5% from 18%/12% and that for select daily essential personal care categories (soaps, shampoo, hair oil and toothpaste) has been reduced to 5% from 18%.

The sharp, broad-based reduction in the GST rates of most food and key personal care categories could revive consumption partially. Easing commodity prices (tea palm, coffee), good monsoon, favorable base for urban consumption, the recent personal income tax reduction and the upcoming pay commission augur well for FMCG consumption in the next 12-15 months. Lastly, this GST-rate cut would offer some headroom for price increases in the medium term (2HFY27/FY2028).

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