FMCG Strategy Post-GST: Quantity Hike Over Price Cut, Amidst Ambiguity

FMCG Strategy Post-GST: Quantity Hike Over Price Cut, Amidst Ambiguity

The article discusses the strategy adopted by Fast-Moving Consumer Goods (FMCG) companies following the GST 2.0 rate rationalization: increasing the product quantity (grammage) in smaller packs rather than reducing the Maximum Retail Price (MRP). However, this strategy faces legal ambiguity.

The FMCG Strategy: Quantity Hike

• Why Not Cut Price? FMCG products, particularly those sold at popular low-unit price points (like ₹5, ₹10, or ₹20), face significant “coinage challenges.” It is often impractical to reduce the MRP by the small, odd amount corresponding to the GST reduction.
• The Solution: Instead of reducing the MRP, companies opt to pass the benefit to the consumer by offering more quantity or volume in the same pack. This allows them to maintain stable price points while technically complying with the anti-profiteering requirements.

Legal Ambiguity and Challenge

• The Deception Issue: This strategy has faced judicial scrutiny. The Delhi High Court previously ruled that increasing quantity without reducing the MRP after a tax cut amounts to “deception,” as it defeats the primary purpose of making products more cost-effective and affordable for consumers.
• Anti-Profiteering Concern: While increasing grammage is an acceptable method for passing on GST benefits, authorities are closely monitoring the process, particularly if the base price was allegedly raised or if the final benefit transmission is not clear. The anti-profiteering provisions demand that the entire tax cut benefit must reach the end consumer.

Consumer Impact

The uncertainty means consumers may need to look closely at the product’s net weight or volume rather than the price tag alone to determine if they are receiving the full benefit of the GST rate reduction.