The Hindu Business Line : Consumer goods unlikely to see price cuts

Mumbai/Chennai, Dec. 8 The cost of your favourite soap or biscuit brand will not immediately come down, despite the Government announcing a 4 percentage point reduction in the ad-valorem CenVAT rates, as part of its stimulus package. But there is some good news — consumers may be pampered by consumer goods and durable majors with freebies, instead of price cuts.

Considering most of the FMCG players have already located their factories in tax-free zones, there is not much chance of dropping prices further in the current scenario. As Mr Sunil Duggal, CEO, Dabur India, said, “All our factories are in the excise-free zones and even with the excise cut not much is coming into our pockets. There is unlikely to be any change in our pricing strategy although we would have liked to cut prices if there were some visible gains in our margins.” Adds Mr Rajan Varma, Executive Director, Dabur, “There would be some savings on excise paid on raw materials, which coupled with the CenVAT reduction, will result in overall cost efficiencies and savings for Dabur.”

However, there may be some “consumer-led offers” by companies such as Godrej Consumer Products Ltd (GCPL) which may be in a position to dole out freebies with their products. “With palm oil prices coming down we may be in a position to give more consumer offers in terms of additional packs but a reduction in MRP will not be possible as the benefit from this excise cut will be very small as our factories are already situated in the excise-free zones,” said Mr R.K Sinha, Chief Operating Officer (Marketing), GCPL.

Mr Satish Kumar, Managing Director, Henkel India, said the 4 percentage point cut in the CenVAT rate will translate to a saving of about three per cent. He said the company could either keep the prices static or drop them a little but the impact on consumer goods will not be much, just Rs 3 on an item which could cost Rs 100. “The excise cuts will help in lowering prices of big ticket items in durables,” he said.

In fact, the excise sops will not impact categories such as biscuits which are already exempt from excise for packs up to Rs 100 a kg. Mr Neeraj Chandra, V-P & Head of Marketing & Innovation, Britannia Industries, said, “The excise cut is not likely to be a big thing for us as we are already exempt up to Rs 100 a kg. But we still have to see the fine print and see the notification before any decision is taken.”

At the same time the ‘recession-insulated’ FMCG industry might have to take a call on bringing down prices sooner or later. As Mr Milind Sarwate, Head, HR & Strategy, Marico Ltd, observes, “The FMCG industry may not take price drops immediately as input prices have been rising steadily over the past couple of years. The FMCG industry may not be feeling the pinch from recessionary trends now but sooner or later it might have to change its marketing and distribution strategies and that is when there might be a drop in prices.”