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Excise duty reduced on buses and their chassis, small cars, two wheelers and three wheelers from 16% to 12% and on hybrid cars from 24% to 14%.
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Customs duty exemption to be withdrawn on naphtha for use in the manufacture of polymers in order to correct price distortions and revenue losses. Naphtha for use in the manufacture of polymers will be subjected to normal rate of 5%.
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Increased emphasis on Bharat Nirman and improving infrastructure.
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Reduction in excise duty on small cars, two wheelers and three wheelers will benefit paint companies, as the prices of cars will decline thereby boosting volumes.
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Increased emphasis on bolstering infrastructure in the country is a positive for companies, as it will enhance the performance of powder and protective coatings.
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Reduction in excise duty on small cars, two wheelers and three wheelers will benefit Kansai Nerolac and Asian Paints given their strong presence in the automotive paints segment.
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Emphasis on improving infrastructure such as roads, capital goods and power will be beneficial to Asian Paints, which has been witnessing strong growth in its powder and protective coatings businesses.
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Mr. R.J. Jeyamurugan – GM Accounts and Tax, Asian Paints
Reduction of duty on import of raw materials used in the paints industry. All raw materials imports to attract a common duty.
Removal of surcharge on tax.
Mr. Ashok Saini – VP Special Projects, Kansai Nerolac Paints
To give boost to the construction of residential units, the service tax on construction should be removed.
Tax relief on housing should increase.
Home loan interest rate should be cut.
The excise duty bracket of 16% for paints to change to 12%, considering the protective aspect of paint rather than taxing it as a luxury item.
Excise on protective coatings should certainly be reduced, as the products in this category are used for protecting valuable assets from corrosion. In India we lose thousands of crores, annually on account of corrosion - a national waste, which can be avoided by encouraging use of ‘paint for protection’.
Interest rates to be cut in the case of loans for automobiles as this will help industry to come out of the present phase of low demand, particularly for the two wheelers.
Encourage improvement in infrastructure by giving incentives in this sector, critical for the overall development in the country. This will help in improving paint consumption as well, both in the architectural and automotive industrial coatings.
| Budget 2005-06 |
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Budget 2006-07 |
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Budget 2007-08 |
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Construction of residential complexes having more than twelve residential houses or apartments together with common areas and other appurtenances.
Exemption on tax deductible housing loan to continue.
Under the rural development programme, 6 m additional houses to be constructed for the poor.
Peak customs duty reduced from 20% to 15%
The new income tax brackets, the change in exemption and deductions available to individuals and the increase in exemption for women.
IT to generate around 7 m jobs till 2009.
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Peak rate of customs duty reduced from 15% to 12.5%. Basic inorganic chemicals reduced from 15% to 10%.
Excise duty is being reduced from 24% to 16% on small motor vehicles.
Duty to be reduced on major bulk plastics like PVC, LDPE and PP from 10% to 5%; on naphtha for plastics to nil; on styrene, EDC and VCM which are raw materials for plastics to 2%.
Emphasis on the Bharat Nirman project and its timely completion.
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Hike in allocation for rural and urban housing infrastructure development.
Reduction in custom duty on chemicals from 12.5% to 7.5%.
Dividend distribution tax to be hiked from 12.5% to 15%.
Additional education cess of 1% to fund secondary and higher education.
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| [Read more on Budget 2005-06] |
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[Read more on Budget 2006-07] |
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[Read more on Budget 2007-08] |
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| Key Positives |
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Steady growth: The Indian paint industry has very low consumption levels as compared to the other developing economies. While the decorative segment is growing at 1% per annum, the industrial paint segment (led by powder and protective coatings) is also expected to record strong growth rates going forward.
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A mixed bag: A robust housing sector is likely to boost demand in the decorative segment. Long-term growth potential of the auto sector is also a big positive.
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Structural shift: Continuous fall in excise duty in the past has benefited organised players and the impending consolidation will add to the pricing power.
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Capex cycle booster: With investment cycle showing signs of momentum, industrial paint demand could grow at a much higher rate than the last five years.
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| Key Negatives |
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Raw material worries: Since the paint sector is highly raw material intensive, rise in crude and petrochemical prices affects performance and the reliance is unlikely to reduce going forward.
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Monsoon blues: The performance of the decorative division also hinges on rainfall. In the last six years, the country has witnessed three years of poor rainfall, which has impacted paint demand.
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Given that the growth of the Indian paints industry to a large extent hinges on GDP growth, the performance of the paints industry last year was healthy on the back of a robust growth in the Indian GDP. Demand especially for decorative paints was strong led by increased construction activity and in the industrial paints business, powder and protective coatings logged in healthy growth rates. In the next five years, the industry is expected to grow at a CAGR of around 11% to 12% and paint companies are expected to clock strong growth rates backed by capacity additions undertaken by them. Having said that, rising crude prices will have a major bearing on the operating margins going forward.
