India Inc revenue will likely grow 6-7 per cent this fiscal because of the reduction in the goods and services tax (GST) rates, as per Crisil Intelligence’s latest report.
However, the anti-profiteering rule in the GST system may prevent companies from seeing a major increase in profit margins, the report added.
The rating agency stated that the reductions in the Goods and Services (GST) will have a positive impact on consumption, which accounts for 15 per cent of the revenue of corporates.
The firm added that the timing of the cuts is appropriate, as they occur during ongoing global uncertainty and align with India’s festive and wedding season, when spending typically increases.
According to the report, the new GST rates will lower the prices of products in key sectors, including fast-moving consumer goods (FMCG), consumer durables, and automobiles. While the passthrough in FMCG, durables, and automobiles will be direct, for a few other sectors, such as construction, the impact will be worth watching.
The rating agency studied the impact of the GST restructuring on various major sectors.
For aviation, it added that the GST on economy class air tickets remains unchanged at 5 per cent, while that on premium economy, business and first class rises to 18 per cent from 12 per cent. The economy class accounts for 92 per cent of the revenue of domestic airlines. Business and first-class travellers are price-inelastic and hence, the increase in the GST rate is expected to have only a minimal impact.
For automobiles, it added, GST reduction on two-wheelers with engine capacities under 350 cc, which account for approximately 90 per cent of the market, should improve sales by 100-200 bps on account of improving affordability of both motorcycles and scooters.
The GST cuts in the agricultural inputs sector are expected to smooth business operations and aid consumer demand in specific sectors.
The reduction in the GST rate on key construction materials is expected to decrease their prices, thereby stimulating the construction sector. The price fall, in turn, will lead to lower construction costs for urban and rural individual housing buildings (IHBs), enabling homeowners to allocate savings towards larger or modified living spaces.
For consumer durables, air conditioners and television sets (over 32 inches) are likely to see a 7-8 per cent fall in maximum retail prices as we expect players to pass on the full benefit of the reduced rates to customers.
The report further noted that in the hotel sector, the GST rate on room tariffs up to Rs 7,500 is expected to be reduced from 12 per cent to 5 per cent, benefiting the hospitality sector and the wider travel and transportation sector.
