GST rate cut uncertainty may dampen festive sales, AC makers most at risk

GST cut uncertainty may dampen festive sales, AC makers most at risk

The government’s plan to rationalise GST rates, announced on August 15, has sparked concerns that festive season sales of appliances and consumer durables may be muted. Shoppers could delay purchases in anticipation of lower prices, leaving companies exposed to weaker demand during the key selling period.

The proposed changes will shift 99 percent of items from the 12 percent slab to the lower 5 percent, while reducing tax on air-conditioners and other durables from 28 percent to 18 percent. Analysts say this could make packaged goods, staples, televisions, mobiles and cooling appliances more affordable once the measures are implemented.

But with timelines still unclear, analysts warn of short-term disruptions. Aakash Fadia, analyst at Yes Securities, said that the risk is particularly high for room air-conditioners (RACs). “If the government doesn't announce the cuts by at least September 15, people will stop the purchases anticipating the cuts. For RAC companies, once the festive season is gone, they have to wait till March next year because purchases will be low in the winter months,” he said.

He added that the impact could also extend to distributors. “The channels also will stop purchasing to get better prices with the revised GST rates, hence we expect the Q2 to be very poor for appliances makers especially for the RAC category.”

A similar concern was highlighted by another analyst at a domestic broking firm. “There is definitely a risk that high-ticket, price-sensitive purchases like air-conditioners, refrigerators, or premium durables could see some deferment if consumers believe the GST cuts will take effect soon. Indian households, especially in Tier-1 and Tier-2 cities, are very value-conscious, and even a 2–5% potential price drop is enough to influence timing of purchases,” the analyst said.

At the same time, the effect may not be uniform across categories. “Essentials and FMCG are less likely to be postponed, while discretionary durables could witness some wait-and-watch behaviour until there is clarity on implementation timelines. If the government provides a firm date aligned post-festive season, it could temporarily soften festive demand. On the other hand, if the cuts are effective before or during Diwali, we may actually see a demand surge as households club festive buying with the GST benefit,” the analyst added.

Manufacturers acknowledge that this uncertainty could alter buying behaviour. Kamal Nandi, Business Head and EVP at the Appliances Business of Godrej Enterprises Group, said that revised rates coming into effect around Diwali may change how consumers plan their purchases. “Since the implementation of revised rates is expected around Diwali, coupled with festive offers and easy financing schemes - we do expect to see consumption being deferred now and the same to pickup during the festive months,” he said.

However, some expect that festive sales may remain steady despite the uncertainty. Krishna Khatwani, Head of Sales (India) at Godrej Consumer Products, pointed out that many households may not want to delay festive purchases. “While there may be some hesitation among consumers, many are unlikely to delay festive purchases. Any rate revisions may take time to come into effect, and the actual benefits might not be passed down immediately,” he said.

He added that the impact may be limited. “Therefore, while a marginal impact is possible, the overall festive demand may remain resilient, particularly for essential or time-sensitive purchases.”

On similar lines, Avneet Singh Marwah, CEO, of Super Plastronics which has licenses for brands such as Thomson, Kodak, Blaupunkt in India said: "The first half of the year has been really tough, but a reduction in prices through a lower GST slab will boost buying, increase consumerism, and therefore, production is expected to increase. Overall, this move would uplift the entire ecosystem and improve market sentiment. The best part is this reduction is happening just before festive,  it will improve the buying sentiments and there will also be a spike in sales."

This move comes at a time when cooling appliance makers are already under pressure. Erratic weather and unseasonal rains in March and April left companies such as Voltas, Blue Star and Havells with heavy inventories, after stocking up for a hot summer that did not arrive on schedule.

Last year, a severe heatwave had led to strong demand, supply shortages and bumper sales. This year, slower offtake has hit earnings expectations. Now, manufacturers are counting on the festive season to revive volumes. The timing of GST cuts could therefore decide whether the festive quarter provides a much-needed boost for durable makers or becomes a period of deferred demand.