Paints Industry
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Budget measures
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Interest rates for all administered interest rates have been lowered by 50 basis points.
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Peak customs duty has been slashed from 35% to 30%.
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The Finance Minister expects the housing industry to grow at 35% in the next fiscal. Besides, he has initiated some measures to rationalise stamp duty and modify the land ceiling act.
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Corporates are now exempt from paying dividend tax.
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Budget Impact
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One of the big positives for the paint industry is the reduction in customs duty. Titanium dioxide prices, which account for 60% of raw material costs for paint companies, will fall significantly. Operating margins, as a result, might increase notably thus enabling the companies to post better profits. However, lowering of customs duty might also result in higher imports in the coming years. |
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Housing demand might increase in the coming fiscal as a result of lower interest rate. This will benefit paint companies in a large way, as their prospects are closely linked with housing demand.
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Industry wish list
Mr. Ashwin Dani, Vice Chairman and Managing Director, Asian Paints (India) Limited
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Presently the basic customs duty on raw materials is levied at the highest rate of 35%. This has an adverse effect on the cost structure of paint production given the fact that the import basket forms 60% of the total consumption. Further, the import duty on finished paints is also 35%. This is not justified as both finished goods and raw materials attract the same import duty. Hence the import duty on all organic and inorganic chemicals should be brought substantially below the duty of finished paints.
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The construction industry generates numerous employment opportunities, particularly labour workforce. The Finance Minister has taken steps in the last 2 budgets particularly by raising the exemption limit on interest on housing loans. The Finance minister should further increase this limit as it will not only help the housing industry but will also help the paint industry.
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For the construction sector to grow at a faster rate, following measure should be taken.
Resolve unclear real-estate titles by setting up fast track courts to settle disputes, computerising land records, freeing all property from constraints on sale, and removing limits on property ownership.
Reform tenancy laws to allow rent to move to market levels.
Property taxes, stamp duties and user charges should be rationalised.
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Key Positives |
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Key Negatives |
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Very low consumption levels compared to other developing economies.
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Industrial sector continues to remain sluggish in absence of investments.
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The impending boom in the housing sector is likely to boost demand in the decorative segment. Auto sector also seems to be on the path to recovery.
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The fiscal state of the economy is a cause of concern. Slower progress of reforms is also limiting growth prospects of the economy.
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Higher agricultural output in the current fiscal would result in higher paint demand consequently benefiting key players.
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As customs duty is lowered to come in line with Asian levels, imports could pose challenges to domestic paint majors.
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The industry has been a beneficiary of reduced excise duties over the last three budgets. This has helped the organised sector to match the price of the unorganised sector. With WTO coming in, organised sector would continue to benefit.
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