Consumer goods prices may stay put

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Our Bureaus

Chennai/New Delhi, Feb. 28

YOU can have your cake and eat it too now with the Budget halving the excise on cake and pastries from 16 per cent. With the proposed tax regime likely to put more disposable incomes in consumers' hands, it could well propel a thrust in spending. However, if you thought you could be forking out less for your items of daily consumption, it may not happen. Dabur India's Chief Executive Officer Mr Sunil Duggal terms this Budget as "neutral" for the FMCG industry. Says he: "There is no direct impact of the Budget proposals for this industry. However, the thrust on the agricultural sector will prove to be beneficial in the long run." The FMCG sector, he says, was expecting excise duty reduction by four percentage points to 12 per cent. All the same, the absence of this incentive is unlikely to prove a dampener to overall growth.

Mr Satish Kumar, Managing Director, Henkel Spic India Ltd, agrees that the Budget will not have too much of either a negative or positive impact on the FMCG industry or on prices. "The reduction of import duty on petro-based products from 15 per cent to 10 per cent will give us a marginal respite. With the reduction of the peak customs duty, the cost of importing raw materials and packaging materials will come down marginally."

Mr C. K. Ranganathan, Chairman and Managing Director, CavinKare Pvt Ltd, too says that FMCG prices are unlikely to come down as there is no significant benefit which can help the industry cut prices. But the emphasis on the rural economy will help fuel demand for consumer goods.

This summer, consumers should expect to fork out just as much or more for soft drinks. Its long-pending demand for reducing the excise duty for the industry from 24 per cent has not been met. Says ED (External Affairs) of PepsiCo India, Mr Abhiram Seth: "The only good part of the Budget for our sector is the proposed formation of an Abatement Advisory Council." The industry has been demanding a hike in abatement to lower the total taxation incidence. However, industry sources indicated that with steadily rising input costs including the rise in sugar prices, soft drink prices could be increased yet again. They said that the measures Government has announced to boost the sugar industry could help but that this will only happen in the long run.

(This article was published in the Business Line print edition dated March 1, 2005)
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