‘GST rate cut to accelerate shift to packaged foods’

Lower GST rates on packaged foods under the recently announced GST 2.0 regime could drive consumers towards formal, packaged formats, especially in cereals / pulses / flour and dairy category, according to an analysis by Frost & Sullivan.

Authored by Dhruv Saxena, Senior Consultant (Agri-Food and Nutrition Growth Advisory), Frost & Sullivan, the analysis said India will be moving to a two-slab GST – 5 per cent and 18 per cent — with nil on a subset of essentials. The new rates will take effect from September 22.

Stating that many pre-packaged foods will become cheaper (5 per cent or nil), he said the previous tax-driven price gap between loose / un-labelled products will get narrow. This will drive a gradual shift to packaged products in staples, dairy and bakery.

Lower rates on packaged SKUs (stock keeping units) reduce the price gap versus loose products, and this will pull consumers towards formal, packaged formats, especially in cereals, pulses, flour and dairy categories, he said.

Nil tax on UHT milk and paneer would support pan-India availability and affordability and increased uptake. In case of bakery-bread segments, nil rate on chapatti, pao, parotta etc., would help QSR segment and street food sales. With 5 per cent GST, juices and processed food segment could unlock greater demand in value tier packs, and single serves in rural and semi urban markets.

With demand-elastic categories such as snacks, noodles, sauces, value-added dairy getting cheaper, rapid pass-through will allow brands to gain market share. An alternative strategy can be to absorb gains without passing the benefits to consumers to achieve higher margins, he said.

Stating that GST 2.0 marks more than a rate cut, he said it provides a reset demand distress facing India’s food and agri value chain.

“With a simpler two-slab architecture, and lower rates on essentials, the policy can translate into real price relief, and stronger consumption — if manufacturers pass benefits through quickly. The winners will re-ladder prices and packs, guard margins, and capture digital and modern-trade visibility in the first 30-60 days. The mandate is clear: convert tax relief into velocity, formalise loose-to-pack demand, and build durable share gains before the market reaches a new equilibrium for the next decade,” Saxena said in the analysis.

Published on September 11, 2025