Cheaper days ahead: PM Modi’s GST cut to make butter, ghee, snacks, noodles cost less

In the wake of Prime Minister Narendra Modi’s mega Diwali bonanza of cuts in the existing Goods and Services Tax (GST) announced on the occasion of India's 79th Independence Day, prices of majority goods used by the common man is expected to come down significantly. 

Prices of common-use goods, such as namkeens, bhujia, snacks, noodles, butter, ghee, among others, will become cheaper once the proposal by the Ministry of Finance for a two-rate GST structure—5% and 18%—is approved by the GST Council.

“All essential daily use commodities related to food, education, consumed by the common man will come under nil or 5% GST slab,” said sources from the government to Fortune India. In fact, last week sources had indicated that the union government has proposed a two rate GST structure comprising standard rate 5% and 18%, thereby doing away with the 28% and 12% GST rates.

With this, 99% of items in the 12% slab will move into the 5% tax basket, thereby lowering the cost for the end consumer.

“This can positively impact sectors such as tractors, which are currently taxed at 12% and could move to the 5% bracket, while air-conditioners (ACs) may benefit from a shift to 18%. Foods companies may also benefit as their tax may drop from 12% to 5%,” said a report from the brokerage house, Nomura.

“Positive impact is likely for foods—namkeens, bhujia mix, snacks, noodles, pasta etc, popcorn, butter, ghee, cheese; dairy spreads, milk beverages, sauces, mayonnaise, condensed milk, roasted chicory/coffee substitute, coconut water, water in 20 liters pack,” the report added.

The proposals, pertaining to the two-rate GST structure, have been sent by the Ministry of Finance to the GoMs on rate rationalisation, and will shortly be sent to the GST Council. The GST Council meeting is likely to be held either next month or in October. 

Apart from rates, the Centre’s holistic GST overhaul proposal includes structural and compliance reforms. Under the structural reforms, the centre has proposed to correct the inverted duty structure (IDS), and address classification issues.