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Big players eating into market share of smaller companies with GST rollover

Wednesday November 15, 2017 12:56 PM, News Network

GST Impact

Even as the Union Government led by Prime Minister Narendra Modi and the ruling Bhartiya Janata Party (BJP) are terming the Goods and Services Tax (GST) an important move for "inclusive growth" a recent report says the new tax is proving to be a game changer only for the big companies.

Bloomberg L.P in its latest report says traders and smaller firms are paying a heavy price ever since GST, which the Congress Vice President Rahul Gandhi has recently described as "Gabbar Singh Tax", was imposed on July 01, 2017 replacing the older tax system.

The trend emerging from the first quarter of earnings since the goods and services tax, or GST, was introduced on July 1 shows bigger companies such as the Tata Group's Titan Co. Ltd, India's largest carmaker Maruti Suzuki India Ltd. and Godrej Consumer Products Ltd. have used the disruptions to gain market share. Smaller operations are reporting that increased compliance costs, supply-chain disruptions and policy changes have hurt profits and forced some to shed workers, Bloomberg says in its report.

The disruptions have hit traders, traditionally a large vote base for Prime Minister Narendra Modi's BJP. Addressing any slump in activity among the country's 58 million small enterprises, and the businesses they supply, will be crucial for growth to rebound in Asia's third-largest economy.

It will take time for small and medium-sized enterprises to recover from the "GST blues" as many weren't prepared and couldn't deal with the changes, said M.S. Mani, a partner overseeing GST at Deloitte India.

"This led to some of them putting all operations on hold and it will now take some time for them to revive their business. Many smaller companies are suppliers to large businesses and they were worried about business continuance and tax challenges", Mani is quoted by Bloomberg as saying.

Citigroup Inc. analysts Jamshed Dadabhoy, Aditya Mathur and Arvind Sharma traveled through the state of Madhya Pradesh in October to meet local companies, wholesalers and traders. In most conversations, owners indicated increased compliance costs and difficulties with the technology and network to upload tax invoices.

On the other hand, Nisaba Godrej, executive chairwoman of Godrej Consumer Products Ltd., said remaining "agile" helped her 120-year-old soap company navigate channel disruptions and deliver 10 percent volume growth.

The gold and jewelry industry is another example of how organized retail has side-stepped any overall volume declines. Titan -- which gets 80 percent of its revenue from jewelry -- reported a 71 percent rise in second-quarter net profit from a year earlier and a 29 percent increase in sales.

At the same time, gold consumption in India dropped to a seven-year low in 2016 as efforts to formalize purchases damped demand. Volumes will probably remain near last year's level in 2017 as well, estimates the World Gold Council.

"There are a few companies that are doing well from a market share capture perspective, like Titan Co. Ltd, Maruti Suzuki India Ltd., Hero Motocorp India and organized retailers, but we didn't get the impression of an acceleration in demand yet," the Citigroup analysts wrote in a report, according to Bloomberg.

That view was shared by the chief of one of India's largest electrical equipment manufacturer, Havells India's Anil Rai Gupta. Businesses have been slow to replenish inventories that were emptied out before GST due to the uncertainty stemming from the new levies, he said.

Credit Suisse analysts Neelkanth Mishra and Prateek Singh cited surveys by Tally Solutions Pvt. Ltd, a software provider, to highlight the pain of many small enterprises.

The surveys indicate businesses are holding back payments to their suppliers till they are convinced the supplier has paid the tax and uploaded the invoice.

"This is because they are unsure they will get any credit," they wrote in a report. "If this is systemic and not just a few anecdotes, it could slow down activity levels in many supply chains for several months."


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