India Inc logs efficiency gains, but will they survive a GST test?

Corporate India, leaner than ever from efficiency gains forged through indirect tax reforms, faces a fresh challenge as the government's GST overhaul threatens to lock up cash and lengthen working capital cycles, even as weak demand clouds their growth prospects.

- Abhinaba Saha

The transition to a two-slab goods and services tax (GST) structure could tie up working capital as companies pay higher GST on old stocks but sell at lower rates, analysts warned, adding that subdued consumer spending could persist through this financial year (2025-26).

The government is expected to unveil details of its GST restructuring this week.

Despite the short-term setbacks, artificial intelligence (AI) and supply-chain automation promise another leap in operational efficiency following a significant turnaround over the past decade.

A Mint analysis of data sourced from the Centre for Monitoring Indian Economy reveals non-financial companies reduced their net working capital cycle to 50 days from 75 between FY16 and FY25.

Indian companies now turn raw materials into cash from sales much quicker than they did nine years ago—a direct result of the government's three-pronged strategy of tax reforms, infrastructure upgrades, and mass digital adoption, according to experts.

While the pandemic briefly reversed these gains with supply shocks, companies have since recovered.

The analysis is based on a rolling sample of firms, with the most recent data covering 1,117 companies compared to about 3,000 in other years.

A sectoral analysis shows that textiles, automobiles, electronics and machinery led working capital cycle gains in the core manufacturing sector.