India Inc sees reduction in input costs

The surprise tax measures announced by Finance Minister Jaswant Singh were perceived by India Inc as an attempt to improve the cost structure of the manufacturing sector by reducing input costs.

The impact on commodity manufacturers will, however, be softer because of the prevailing high international prices.

Makers of automobiles, durables and computers as well as cement will be the major beneficiaries, while domestic tourism is also expected to get a huge leg-up.

Rahul Bajaj, chairman and managing director of Bajaj Auto, said, "While all the measures will help the growth and development of various sectors, one can't help but think that most of the changes have been made with the forthcoming elections in mind."

Cement companies will benefit as the bill for coal imports will come down almost 10.5 per cent. Companies like Gujarat Ambuja, ACC, L&T and Grasim stand to gain the most.

"Domestic coal prices are also likely to soften, with the cost of imported coal coming down," DD Rathi, group executive president & CFO of Grasim Industries, pointed out.

"The lowering of the import duty on coal may, however, be offset by the rising international cargo rates," Y M Deosthalee, CFO of L&T, added.

According to CRIS INFAC, the research wing of rating agency Crisil, if the drop in steel prices is around 10 per cent, and most of it is passed on to automobile original equipment manufacturers, the benefit to passenger car manufacturers will be around 1.6 per cent on every unit, or Rs 4,000-6,000 for a compact car and around Rs 7,500-9,000 for a mid-size car.

"The reduction in peak Custom duties will benefit automobile assemblers more than the manufacturers. Manufacturers who have a high level of indigenisation, like Maruti, Tata Motors and Hyundai will see a very marginal impact," said BVR Subbu, president, Hyundai Motors.

The impact on companies like Toyota, Honda, Ford and General Motors will be higher, at around 3 per cent.

The prices of imported cars brought in as completely built units (CBUs) and cars that are assembled from completely knocked down (CKD) kits could also drop.

The price drop for branded personal computers (PCs) is expected to be around 10 per cent. This will hurt the grey market, which benefited by importing goods without paying duty.

"We foresee PC prices dropping to as low as Rs 15,000 by January 15," Raj Saraf, chairman and managing director of Zenith Computers, said.

Ashwini Kakkar, CEO and managing director, Thomas Cook, said, "The various positive incentives being provided by the government to civil aviation augurs well for the tourism industry. These steps will positively affect air seat pricing and lead to a surge in domestic air travel, not only within the commerce and business realm but also on the individual travel front."

The reduction in duty for power projects will spur investment in the sector and result in the setting up of low-cost projects.

FA Vandrevala, managing director of Tata Power, said: "The government has sent out a very strong signal about its emphasis on the core sector. Though the reduction in Customs duty will lead to a one-time loss for the government, it will gain through overall economic growth."

The reduction in Customs duty on copper and the removal of the special additional duty is likely to result a drop in domestic prices by around Rs 6,000-7,000 a tonne. This will have a negative impact on companies like Hindalco and Sterlite.

"The interim Budget is right on time and contributes to the feel-good environment. It will surely make India shine at the World Trade Organisation negotiations. There is something for almost everyone in this mini-Budget," Harsh Goenka, chairman, RPG group, said.

Venugopal Dhoot, chairman, Videocon group, said: "The mini-Budget will multiply the feel-good factor in the economy. The tariff reduction is a move to bring it down to Association of Southeast Asian Nations (Asean) levels. Inflation is expected to go down and this will reflect on the prices of products, benefiting the consumer."