Are FMCG and durables set to gain? Venugopal Garre’s outlook on GST impact

Venugopal Garre, MD, Bernstein, says government’s GST tweaks, along with subsidies and tax cuts, could lift consumption in small-ticket discretionary items, FMCG, and consumer durables, while premium goods may see limited benefit. Fiscal deficit impact is expected to be manageable, with festive season demand offering short-term opportunities for investors.

General
Clearly the government seems to be pulling all strings. What more could one have asked for? Do you think this will finally propel consumption?

Venugopal Garre: Consumption has been one of the weak spots of the economy for a couple of years, with only a few segments driving growth. The government’s focus on boosting consumption has been visible for almost a year—first with subsidies, then middle-class tax cuts, and now potential GST tweaks. India’s overall tax burden, both direct and indirect, is relatively high. With inflation currently low, this is a timely step to lift consumption from subdued levels. However, I wouldn’t call it a dramatic change in the consumption trajectory, which usually depends more on broader economic strength.

General
But along with that, there will also be a fiscal impact. Should one be cautious about that?

Venugopal Garre: At the start of the year, I was surprised that the budget projected a lower-than-expected fiscal deficit. My view is that when inflation is low and growth momentum is weak, some fiscal and monetary push is desirable. Flexibility is key. The eventual impact on the deficit will depend on the scale of GST benefits. Certain higher-value or premium items may still face compensatory cess, so the net consumer benefit is unclear. My estimate is at least a $10 billion-plus positive transfer to consumers. Part of this could be offset by lower capex, but the overall fiscal deficit impact should be manageable at around 10 basis points.

General The GST slab restructuring and possible tax cuts on insurance premiums could have a trickle-down effect. Which segments are likely to benefit the most?

Venugopal Garre: The focus is clearly on the middle class—particularly small-ticket discretionary items and, to some extent, FMCG. Small-ticket discretionary spends are the most sensitive to price changes, so both these categories could see a volume boost and stock price momentum. Premium and luxury goods are unlikely to benefit meaningfully from this.

General From an investment perspective, how should one position to benefit from these announcements?

Venugopal Garre: This is a three-month story, with the festive season likely to reflect both consumer spending and stock price movement. FMCG as a whole should see some benefit, though premium FMCG might lag. In consumer durables, items like air conditioners, currently at 28% GST, could come down to 18%, which would help AC makers. Even where rates don’t change, higher disposable income will indirectly benefit durables. Discretionary categories such as retail and QSRs should also see buoyancy, supported by other favorable trends. For autos, the picture is less clear, but in theory, small cars and two-wheelers stand to benefit the most, if rates are reduced.

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