Stimuli rollback will have its impact despite rise in income.
It's a mixed bag for consumer focused industries as measures announced to increase disposable income in urban and rural areas stand to get diluted a bit. This is on account of the hike in prices expected due to a partial rollback of the fiscal stimuli, not to mention an increase in the rate of the minimum alternate tax (MAT) paid by companies. This has clearly come as a dampener.
For those not paying the full rate of tax, the increase in MAT to 18 per cent from 15 per cent is something that many did not expect in this Budget. By some estimates, the additional outgo as a result of this measure is likely to be nothing less than Rs 10 crore per company per year. “So, Hindustan Unilever, Dabur, Godrej Consumer Products, Marico, Emami, etc would have to watch out,” says an industry observer.
The second dampener is the two per cent rollback in excise duty as well as the restoration of 5 per cent, 7.5 per cent and 10 per cent basic customs duty on crude petroleum, petrol and diesel and refined products, respectively.
Consumer focused firms unanimously agree that the excise duty cut, though expected, will have a straight impact on prices. This means, the hike will be passed on to consumers. But there are allied cost pressures such as the customs duty hike as well as the general input inflation that firms have been seeing in the last few months, which is likely to be passed on in the near term, say observers. The net impact, therefore, is an over two per cent rise in prices across fast moving consumer goods as well as durable products. Says Dalip Sehgal, managing director, Godrej Consumer Products Ltd, “A 2-4 per cent increase in prices will be there across our product categories.”
Adds V Ramachandran, head, strategy, LG Electronics India Ltd, “You can expect an over two per cent hike in prices in the near term.” Though manufacturers of lighting equipment are a bit better off on account of the reduction in excise duty to 4 per cent from 8 per cent on light emitting diode (LED) lamps, bringing it on par with compact fluorescent (CFL) lamps — both key products for these companies — many are still quite worried about the general rate of inflation on the input side.
ITC has to grapple with a higher-than-expected duty hike on cigarettes, cigars and cigarillos. By some estimates, ITC is likely to announce nothing less than a 6-8 per cent hike in cigarettes in the next few weeks.
There are some positives, too, in the current Budget, such as the announcement of an additional five mega food parks to be set up in the country over and above the 10 already being set up. External commercial borrowings will be made available for cold storage or cold room facilities, including farm-level pre-cooling, preservation/storage of agricultural and allied produce, marine produce and meat, etc. Besides, R&D deduction has been increased to 200 per cent from 150 per cent.
