The Federation of All India Distributors Associations (FAIDA) has raised concerns over complications arising from the recent GST rate reductions, cautioning that without clear guidelines, both consumers and small traders could be left at a disadvantage.
In a letter addressed to Finance Minister Nirmala Sitharaman on September 8, a copy of which was accessed by CNBC-TV18, the body outlined the financial and operational challenges its members face.
FAIDA, which represents nearly five lakh distributors across FMCG, mobiles, telecom, and food & beverages and serves over two crore retailers nationwide, highlighted that a significant portion of unsold inventory remains stuck at old tax rates.
“A large portion of the current stock is already lying with company distributors or super stockists. Even though tax rates have been reduced, manufacturers may not revise the printed MRP on these goods,” the association said in its letter.
The distributors warned that the relief may not translate into consumer benefit in the short term. “Even if retailers receive goods at a reduced price from distributors, there is no guarantee that this benefit will be passed on to consumers—particularly since the market is already carrying four to six months’ worth of old stock at the earlier prices,” the letter noted.
Adding to the uncertainty, the body pointed out the risk of companies resorting to temporary marketing tactics.
“Distributors claim that even if they reduce prices in line with the tax reduction but the old MRP remains printed, the passing on of benefits becomes doubtful from a legal standpoint. Companies may release temporary schemes such as ‘10% extra product’ or ‘20% extra’ while continuing to sell at the old MRP. After a short time, these schemes may be withdrawn, and the old MRP-based sales will resume. In such cases, the consumer gains nothing from the GST reduction,” the letter said.
A more pressing concern is the blockage of Input Tax Credit (ITC), which FAIDA said is straining working capital.
“This change is not a minor one. For example, if a distributor holds ₹1 crore worth of stock, about ₹13 lakh of tax already paid remains stuck in ITC with the department. That amount is part of our working capital. Distributors cannot sustain their business when three-fourths of their working capital is stuck in ITC, which we cannot recover in a short time,” the association warned.
The impact, FAIDA added, goes beyond liquidity stress. “If such a large sum gets blocked, it not only burdens our business operations but also creates severe financial pressure due to capital shortfall. Refunds are not available. Our operations depend solely on our tie-up with the principal companies, and if such a tie-up ends, our business collapses to zero, forcing closure. In such a situation, recovering the blocked ITC becomes nearly impossible,” the letter stated.
The association also flagged the absence of clarity from manufacturers and policymakers, leaving intermediaries exposed to compliance risks.
“These complications have left even experts—leading Chartered Accountants and consultants—offering confusing interpretations, creating difficulties for both consumers and small traders. Media is also publishing speculative reports without any clarity. Meanwhile, manufacturers have remained silent and have not clearly explained how the GST relief will reach consumers. The industrial lobby seems unprepared to address the issue,” the body observed.
In its submission, FAIDA sought clear guidelines from the Finance Ministry to ensure three outcomes:
- Distributors and intermediaries are not unfairly burdened.
- They are protected from legal risks arising from outdated MRPs.
- The intended benefit of GST reductions is effectively passed on to consumers.
“As intermediaries in the distribution system, we are left uncertain about how to proceed. We have already paid GST on the stocks lying with us. Now, how should relief be extended on such goods? Since the printed MRP is already in place, we cannot alter it by affixing stickers, as that would invite legal complications,” the letter asked.
With lakhs of distributors and crores of retailers directly impacted, FAIDA has urged the government to act quickly to prevent market distortions and ensure that the consumer welfare objective behind GST rationalisation is meaningfully achieved.
