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Discretionary spending slips with price rise

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Prices of big-ticket or discretionary products including televisions, refrigerators, washing machines and air-conditioners went up 1-3% under the GST regime with net taxation going up from 26% in the VAT-excise period to 28%. This, along with hardening of commodity prices, pushed up prices by an overall 3-5% in the past year.

“The increase in prices has made entry-level products unaffordable and hence a lot of consumers are either postponing or cancelling their purchase decision,” said Godrej Appliances business head Kamal Nandi. “Rationalisation of GST rates is the need of the hour since the products are now necessities.”

Apparel retailers, however, saw average prices drop due to the reduced taxation rate of 5% under GST for products below Rs 1,000.

Lifestyle International managing director Vasanth Kumar said average apparel prices have dropped 3-4% in the past year. “This has increased consumption overall. But the biggest benefit for retailers is simplification of stock movement, which now happens in half the time,” he said.

But eating out expenses remained nearly unchanged, especially after removal of input tax credit in November. “Restaurant industry is the only industry which does not receive input tax credit, one of the crucial components of GST, which is used to prevent cascading of taxes in all other sectors,” said Rahul Singh, president, National Restaurant Association of India. “This has not just hurt menu prices but also expansion plans for restaurateurs.”

Cigarette prices rose 4-8% due to increase in cess in the GST regime, where effective tax rose 11-15%. As a result, sales volume declined 8-9% last year and is still affected, having fallen 3% in the March quarter.

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