The fast moving consumer goods (FMCG) segment is the fourth largest sector in the Indian economy. The market size of FMCG in India is estimated to grow from US$ 30 billion in 2011 to US$ 74 billion in 2018. Food products is the leading segment, accounting for 43 per cent of the overall market. Personal care (22 per cent) and fabric care (12 per cent) come next in terms of market share.
In spite of many driving factors like rising income level, enhance awareness regarding brands, desire to experiment with brands, evolving customer life style, growth of modern trade, availability of online channels for shop etc. , this industry is experiencing sluggish growth rate at recent due to late arrival of monsoon, higher inflation rate and reducing demand trend in rural areas.
So the FMCG sector is very curiously awaiting for the applicability of goods and service tax (GST) which will bring significant change in the traditional supply chain structure. Currently industry players are holding depots, warehouses and carrying and forwarding agents to avoid 2 % CST or it’s better to say to avail input tax credit. The traditional supply chain has been designed by keeping the tax benefits in mind.
Goods and service tax (GST) is a broad based, single, comprehensive tax levied on goods and services consumed in an economy Seen as the panacea for removing the ill-effects of the tax-on-tax regime. Goods and service tax (GST) will allow the industry to redesign the supply chain to reduce the cost of goods sold and speed up time to market.
Let’s understand the impact of goods and service tax in brief:
Supply chain structure
- Introduction of GST as a unified tax regime will lead to a re-evaluation of procurement and distribution arrangements
- Removal of excise duty on products would result in cash flow improvements
Cash flow
- Tax refunds on goods purchased for resale implies a significant reduction in the inventory cost of distribution
- Distributors are also expected to experience cash flow from collection of GST in their sales, before remitting it to the government at the end of the tax-filing period
Pricing and profitability
- Elimination of tax cascading is expected to lower input costs and improve profitability
- Application of tax at all points of supply chain is likely to require adjustments to profit margins, especially for distributors and retailers
System changes and transition management
- Changes need to be made to accounting and IT systems in order to record transactions in line with GST requirements and appropriate measures need to be taken to ensure smooth transition to the GST
All major players having legacy ERP systems which needs to be updated and in this new supply chain structure the companies will more focus on distributors, stockists and retailers so the demand for end-to end distribution solution include retail execution and order booking with online and offline access with the ability to integrate with any legacy system will spur.