GST: Strains in supply chain even as soap makers slash prices

Mumbai: A week after India embraced goods and services tax (GST), strains in the supply chain are showing up. Soap and detergent firms have cut prices of bar soaps to pass on the benefit of GST rates, but dealers who supply stocks to retail outlets complain they are struggling to get sufficient stocks.

With soap and detergent bars now taxed at 18%, manufacturers including Hindustan Unilever Ltd (HUL), India’s largest consumer packaged goods firm, cut prices on key products last week, including Rs3 on a 250g bar of Rin detergent. HUL has also increased the weight of certain other products including Surf Excel bar, Dove bathing soap and Pears bathing soap.

“We have not received much stock as of yet; it will probably take another month for things to settle,” said a dealer of soaps and detergents in Mumbai. “The worst hit are small scale industries and the local brands (that they make),” the dealer said, asking not to be identified.

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“There is no clarity on what is going on with GST and stocks,” said Jeetu Arora, proprietor of Arora Soap Depot in Shalimar Village near the northwestern border of Delhi. “Distributors are afraid to take stocks out, and whatever is coming in is on kachcha bills (temporary invoices, usually without taxes added),” he said.

“Stocks have not been coming, though manufacturing units have been working,” said another soap and detergent dealer in Mumbai, who did not wish to be identified. “Some (dealers and distributors) have problem with the (GST invoicing) software; some just do not have the GST (registration) number.”

“There is a lot of confusion and stock has not been coming,” said a fourth soap and detergent dealer in Mumbai who too did not wish to be named. “For instance, Himalaya stocks have come, but my order with Hindustan Lever is pending. The bigger problem is, even if I get stock, if the guy ahead of me (small retailer) doesn’t have GST (registration), how will I move goods ahead?”

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Meanwhile, products that have been rolling in have mostly seen a marginal drop of Rs1-3, said the dealers quoted above. No manufacturer has raised prices on any of the products, they said. “But Patanjali has reduced its margins (it offers to retailers) from 12.5% to 8%,” said the third dealer quoted above.

Fast-moving consumer goods manufacturers say they are aware of problems among wholesalers and retailers.

“Our distributors are all GST-ready. We don’t fully know about wholesaler readiness,” said Vivek Gambhir, managing director of Godrej Consumer Products Ltd (GCPL), in an email. “Some of them along with some retailers are still in the process of getting ready. Given the complexity of the change, it will take a few weeks for things to get back to normal. However, the trends are positive—our system migration has gone without hitch and billing for new orders has commenced.” GCPL makes Cinthol and No. 1 soap brands.

Meanwhile, dealers are bracing for an increase in prices of powder and liquid detergents placed in the highest GST tax bracket of 28%.

The move is likely to hit HUL as it makes nearly 18.72% of the company’s turnover from selling bar, powder and liquid detergents, shows HUL’s annual report the fiscal year 2017.

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“The rates are broadly in line with what we expected basis the strategy outlined by the government barring in laundry detergents and household care products where the rate is at 28% which is in contrast to other daily necessity products such as soaps and toothpastes which are at lower slab,” a company spokesperson had said in an email on 19 May, a day after the GST Council announced the goods in different tax slabs in Srinagar. “The laundry detergents and dish washing bars are daily necessity products used by families for cleaning purposes hence in the interest of consumers and to maintain basic hygiene & cleanliness it is important that they get the same treatment as other daily necessity products.”

The company declined to comment on its plans for prices of its detergent portfolio which includes Wheel, Rin, Vim, and Surf Excel.

“We have not yet been informed (from distributors and the manufacturers) on the prices of detergents and washing powders,” said the first dealer quoted above. “But they (manufacturers) will have to increase prices, probably by 2-5%. Before GST, they had been increasing prices steadily but now everyone is watching carefully.”

Some manufacturers have decided to wait and absorb lower margins from the higher taxes on detergents.

“In line with our intent to pass on the benefits of lower rates of the GST to consumers, we have reduced prices and/or increased grammage of various soaps,” Gambhir said in the email. “On detergents, we are not planning any price increases in the immediate term and intend to absorb the GST increase for the time being,” he said. GCPL sells the Ezee brand of liquid detergent.