India’s goods and services tax (GST) has a found mention in the quarterly earnings calls and statements of global chiefs of nearly half a dozen consumer goods MNCs, as they cited the disruption caused by the transition to the new tax regime in a market whose profile has risen steadily within their global operations.
The country accounts for 2-9% of the global sales of Unilever, Colgate, GlaxoSmithKline, Coca-Cola, Nestle and Reckitt Benckiser, and is potentially a highgrowth market for them.
Some of these companies said the impact of the GST rollout weighed down their overall global performance, highlighting India’s importance as a key revenue generator.
At the same time, most of them have welcomed the new unified tax structure, which they believe will prove to be beneficial in the medium term.
“While we believe India has taken the right steps towards modernising its monetary and tax system, new policies have resulted in near-term uncertainty for retailers and consumers that impacted the beverage industry in the first half,” Coca-Cola CEO James Quincey said on Wednesday during a call with investors, becoming the latest in a growing tribe of international chief executives to comment on GST.
Analysts are not surprised by the attention that GST and Indian operations are attracting.
Slowdown Witnessed in Sales
“Indian business will be among the top five or ten markets for most global consumer companies in the long term. The contribution has been steadily increasing and is now contributing significantly to Asia-Pacific sales,” said Edelweiss Securities senior vice-president Abneesh Roy.
In the run-up to the new tax regime on July 1, several consumer goods companies witnessed a slowdown in sales as distributors and wholesalers attempted to liquidate existing stock. After July 1, price cuts have been announced in categories where tax rates have been lowered. But, in some rural areas, where wholesalers have not upgraded their systems to be GST compliant, there have been supply disruptions. “In India, the welcome introduction of the new GST prompted distributors and wholesalers to cut back their stocks during the transition period,” Unilever’s global chief Paul Polman told investors last week. Unilever CFO Graeme Pitkethly said the company expects price growth to moderate as there would be less pressure on commodity costs and tax benefits of GST in India would be passed on to consumers.
Hindustan Unilever, the Indian unit of the company, accounts for nearly 9% of its global sales and India is its second-largest market.
Oral care major Colgate-Palmolive’s Asia Pacific sales declined 3.5% in the April-June quarter, primarily reflecting inventory reductions by wholesalers in India in anticipation of the new tax, increased competitive activity in Australia and consumption decline in Thailand. “We were just digging out of the demonetisation headwind and then boom you get the GST which basically saw the stock list close up sharp the last two weeks in June,” said Colgate’s global CEO Ian Cook. He added that the company was hopeful that there would be a “rebuild across the back half of the year”.
Reckitt Benckiser Plc said GST’s impact on its full-year revenue could be £50 million, or about .`420 crore. “Volatility has been seen in India, particularly in the second quarter as many customers delayed their orders due to the implementation of GST,” Rakesh Kapoor, chief executive at the British consumer goods and healthcare maker, said. The maker of Dettol, however, added that there is no evidence that consumption had reduced and the market saw very strong sales in early July.
British consumer goods and healthcare maker GSK Plc, too, said destocking on account of GST in India has impacted its global nutrition business in June quarter.