With the ever-rising inflation, even the slightest change in the costs of essential foods agitate the majority of the population. The recent decision of the GST Council to bring unbranded pre-packaged food under the GST umbrella has upset the traders throughout the country. The traders’ body, Confederation of All India Traders (CAIT), has claimed that the decision will diminish the small traders’ already low-profit margins. It further added that the move will benefit the big brands as the competition from small traders, who sell unbranded packaged foods, will weaken.
Although the consumers will feel the price pinch due to the GST Council’s decision, it will also prove to be a veiled benefit. Many big reputed often deregister themselves to claim the exemption of taxes allowed on unbranded food products. Also, the unbranded manufacturers will now have a responsibility, and the consumers will know what goes in the products that they are consuming. This will increase the consumers’ awareness of the nutritional values, thereby being mindful of what they buy.
The move will also fill the gaps in revenue as many a time the small traders would repack the bulk quantities of branded packaged food into smaller quantities with their own labeling to maximize the profits. Inclusion of unbranded packaged food will deter the traders from resorting to such malpractices.
The brunt of this decision will be borne mostly by the population in rural areas, as the consumers in those places usually buy unbranded, unpackaged, and loose food products. Although the impact on the demand will be significant due to the increased costs, it could be a short-term drop in demand. This is because the food products included under the 5% GST slab include cereals, wheat flour, honey, fish, curd, paneer, jaggery, leguminous vegetables, milk, and puffed rice, which are mainly staple foods. Consumers are bound to purchase these food items, though in lesser quantities. The GST Council’s decision could favor the big brands as they could get an advantage from the input tax credit but might not pass on the benefits to the consumers.
“This move could impact the food quality, as small and micro industries could degrade the quality of their own packaged food products to compensate for the cost towards the latest GST rules. It could result in low-grade food quality reaching markets which will be unsafe for mass consumption”, said Ashwin Bhadri, CEO of Equinox Labs, a food safety and auditing company that closely works with FSSAI.
Food testing at small manufacturing units then becomes imperative. While food products are not the only things to take a quality hit, the use of sub-standard equipment and ingredients could gain traction. Consequently, consumers will be at the biggest loss due to GST Council’s latest move. The big brands stand a high chance to gain from this move, which has irked the MSME food industry.
The General Secretary of CAIT, Praveen Khandelwal, opines that the decision could be irrational as the big brands serve 15% of the country’s middle and upper-middle class population, while the small traders serve 85% of the population, which is a majority. He feels that the decision would only drive the country’s inflation higher with the inclusion of the essential foods under the 5% GST bracket. CAIT is planning to hold meetings with the Union Finance Minister, Nirmala Sitharaman, to roll back the move. Praveen also highlighted that the former Finance Minister, Arun Jaitley, had been wary of not including the staple and daily necessities out of the GST umbrella.
The Government’s decision will empower the big brands to overtake the small players’ business and profits, leaving a dent in their lowered incomes and profits due to the novel coronavirus pandemic. The small traders had already lost their profits to the big brands as they leveraged technology for delivering groceries through online ordering systems. The Government’s decision to levy 5% GST on the unbranded pre-packaged food products could drive the final nail in the coffin for small traders.