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Excise cut to fizzle out on soft drink prices

Our Bureau

NEW DELHI, Feb. 28

THE significant excise reduction for soft drinks announced in the Union Budget notwithstanding, consumer prices are not likely to be brought down any further in the approximately Rs 7,000-crore carbonated soft drinks (CSD) industry.

While the reduction of total excise duty on CSDs from 32 per cent to 24 per cent is being hailed as a positive move by the industry, the simultaneous reduction in abatement from the existing 50 per cent to 45 per cent will substantially erode the impact of lower excise duty on industry and consumers.

Said Mr Sunil Gupta, Vice-President of Coca-Cola India, "We have already brought about reduction in the prices of our soft drinks, and are making large investments in our operations this year. This will boost production and overall economic activity through forward and backward linkages, generating additional employment and income."

Just last month, both Coca-Cola and PepsiCo announced a 15-25 per cent price reduction across their brands. While prices for 200 ml returnable glass bottles were brought down to Rs 5 from Rs 7, prices of 300 ml glass bottles were reduced from Rs 10 to Rs 8. The Rs 5 price point has now become a significant selling point for both cola companies.

According to a PepsiCo official, "While reduction of excise duty is a welcome move, effective reduction in excise duty works out to 2.8 per cent, taking into account the 5 per cent reduction in abatement. The recent 20 per cent drop in the prices of our brands is considerably greater than the 2.8 per cent relief. Also, despite the reduction in the SED, the combined indirect tax incidence remains at a high 25 per cent, if we combine excise and the proposed VAT."

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