Every economic slowdown hurts the poorer people the most. The cash crunch rising out of slowing economy and rising unemployment is making the situations worse in India so bad that they are cutting back on biscuits and that is leading to more job losses at manufacturing plants.
The slowdown in the economy has reached one of the most defensive sectors—fast moving consumer goods as India’s largest biscuit maker, Parle is considering laying off 10,000 employees over the next one year.
Parle’s products are mostly consumed by people in the in smaller towns and villages and it employs about one lakh people, including direct and contract workers, across 10 company-owned facilities and 125 third-party manufacturing plants.
During this year only, the auto industry has already laid off nearly 350,000 employees in the last four months.
Apart from Auto and FMCG sector, Jewellers are also turning to the grey market to sell smuggled bullion or jewellery at a discount, to avoid imposition of 15.5 per cent duty they have to pay in their legitimate business.
Aditya Narayan Mishra– Director and CEO of CIEL HR Services said after all these sectors we will see white goods, logistics, entertainment, hospitality and other services getting impacted
Higher Tax and Lower Income
Mayank Shah, Category Head, Parle Products, told that “In the past seven to eight months, our sales growth has come down from 11 to 12 per cent to 2.5 per cent.
As a natural outcome, we will have to cut our production by 8 to 10 per cent and this will see 8,000 to 10,000 people going out of job,” According to him, the crisis started with the introduction of GST and became acute with the current slowdown.
Under the earlier tax regime, biscuits priced below Rs 100 per kg were exempted from the excise duty. Hence, low priced biscuits had to pay 14 per cent tax, while those priced above Rs 100 were taxed 22 to 24 per cent.
However, under GST, the rates were rationalised to 18 per cent, thus, taxing the lower priced biscuits more by 4 per cent and the higher priced ones less by 4 to 6 per cent.
He further added that several representations have been made to the government, and the government also in-principle agreed to our point that those articles which were exempted from excise duty should be treated accordingly under GST.
Although nothing has happened yet and we have been waiting for the government to take action on this for the past one-and-a-half years.
Parle had absorbed the higher taxes and suffered losses in the hope that the GST rates will be lowered. Seven to eight months back, Parle went for a price hike in products priced below Rs
Biscuits priced below Rs 100 account for 35 per cent of Parle’s sales and 25 per cent of the total industry sales. These biscuits are largely consumed by the rural markets.
The slowdown has hit the entire biscuit market as well, though not to the extent of Parle. Biscuits priced above Rs 100 too have witnessed growth coming down from 18 -20 per cent to 8-9 per cent.
Shah is hopeful that the government will take steps to revive the general demand and also the demand in the low-priced biscuits by bringing down the taxes to 5 per cent.