No difference between branded and unbranded? Thanks demonetization for it

Demonetization coupled with implementation of the Goods and Services Tax (GST) regime is set to shrink the wide pricing gap between unbranded and branded products in the Indian stationery industry.

The reason being most unorganised players and small and medium enterprises (SMEs) that manufacture unbranded products will now have to reorganise their businesses, which will add to the cost of operations by up to 20%, thus increasing prices of unbranded stationery products.

As a result, every transaction will not only be documented for auditing purposes but the entire process of receiving and making payments will have to be done via net banking or through cheque payments.

Additionally, these businesses will now have to compulsorily provision for employee benefits like ESIC, provident fund, gratuity, etc. All this will not only lead to an increase in costs but also impact margins.

Speaking to DNA Money, Amrut P Shah, CMD, Sundaram Multi Pap Ltd, said demonetization is significantly impacting the cash business modus operandi. "Big wholesalers from across Maharashtra would primarily deal in cash transactions. However, with no cash getting generated (due to demonetization), these players will be forced to operate in an organised manner.

Secondly, unorganised players do not pay value-added tax (6%), excise (2%), among others. However, with GST, this will also get streamlined," said Shah.

India's stationery industry comprises four broad categories - school, paper, office and writing instruments. While there is no official data for the size of the industry, the market size for writing instruments, according to Manoj Lodaya, CEO, GreatWhite Global P Ltd (with brands like Anchor pens and stationery and Italia pens), is pegged at Rs 4,500 crore, of which 40% is exported.

The biggest category, according to Shah, is the paper stationery at around Rs 8,000 crore. "The unorganised market is huge at over 80% and only between 15% to 20% is in the organised segment," said Shah, adding that the impact of demonetization is largely being witnessed in the unorganised segment.

On the GST part, the stationery products will more likely be in the 12% tax bracket. However, school stationery, which forms 80% of the overall stationery products, could be in the 4% tax bracket.

According to Lodaya, the good part is that the unorganised players will now become part of the organised sector as they will now have to follow the rules and regulations. "The price impact could be anywhere between 15% and 20%," he said.

Echoing the sentiments, L P Singh, head – sales and marketing, Navneet Education Ltd, said the industry requires brand and consumer orientation to stop the prevalent price war scenario in the market. "While the policies will help do away the unhealthy business practices, this will lead to increased affordability and the manufacturer will still be able to sell at higher price points," he said.

On how the stationery industry SMEs are managing the transition, Paras P Shah, president of Federation of Maharashtra Stationery Manufacturers & Traders Association said that the federation is working on facilitating the same. "It's an ongoing process because the scenario is evolving every other day. Unless the entire process is very clear, SMEs will not be able to complete the process. The federation has got on board a few consultants to help the members manage this transition. SMEs that need handholding can very well approach the federation for assistance and we will guide them," said Shah.

Shah added that the federation is taking necessary steps to educate its members (comprising SMEs, big wholesalers, traders, distributors and retailers) across the state on the possible impact of GST. "This is crucial if they want their business to continue and grow in the coming years," he said. The federation currently has 32 associations from across Maharashtra with each association having between 50 to 500 members.