Budget 2004: FMCG
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Excise on biscuits reduced to 8% from 16%. Excise on soft drinks has also been reduced. |
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All states to switch to VAT in 2003-04. |
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Loans to agriculture and to small-scale sector will now be available at maximum 2% above prime lending rate (PLR). |
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Development plans for roads, ports, railways and airports. |
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Customs duty on alcoholic beverages reduced. |
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The immediate positive for the FMCG sector is states switching to value added tax (VAT). This had been a long pending demand of the FMCG sector. Post this, the tax ambiguity will get reduced and the FMCG companies will benefit from the same. |
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The initiative for easy loans to agriculture and SSIs are aimed at encouraging credit off take and investment, leading to rural economy development. For the FMCG sector, this is good news as rural economy contributes almost half of all FMCG sales. |
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The planned development of roads, ports, railways and airports, will increase FMCG penetration in the long term. However, the fall in agricultural output continues to cast on FMCG sector's prospects in the short term. |
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Biscuits and soft drinks may get cheaper as a result of excise duty reductions. Good for Britannia, Parle, Coke, Pepsi, Pure Drinks and HLL (which is looking to enter bakery sector). |
| Complete de-reservation of consumer products sector. If it happens, it will enable Indian companies to undertake manufacturing on a mass scale resulting in operational and quality efficiencies. |
| Quality check on imported FMCG products and effective enforcement of copyright laws. This would go a long way in filtering out import of sub-quality and discarded products, benefiting both the manufacturers and the consumers. Also, there should be a comprehensive policy to hit out at contraband imports. |
| More focus towards networking the food supply chain, which will enable free flow of food related products across the country, to the benefit of both manufacturers and consumers. For the government, it will mean effective utilisation of food stocks. |
| As per CII, excise duty difference between 'branded' and 'unbranded' food products existing at present should be removed to encourage consumers to move from unhygienic unbranded foods to hygienically packaged processed foods. |
| Budget 2000-01 |
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Budget 2001-02 |
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Budget 2002-03 |
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| No specific measures |
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Import duty hikes
From 35-55% to 75% for crude edible oil
from 45-65% to 85% for refined edible oil
From 35% to 70% for copra, coconut, tea and coffee
From 25% to 55% for crude palm oil
Other measures…
Development allowance of tea industry raised to 40% from 20%
All food preparations based on fruits and vegetables (pickles, sauces, ketchup, juices, jams etc.) made completely exempt from excise duty
Excise on cosmetics and toiletries halved to 16%
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Increased focus on agricultural reforms with an aim to integrate the countrywide food market
Deregulation of the milk processing capacity
Excise duty structure largely untouched. Only for tea, the duty was reduced from Rs 2 per Kg to Re 1
Customs duty on tea and coffee doubled to 100%
Duty on imported pulses upped to 80%
Import duty on wine and liquor slashed from 210% to 180%
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[Read more on Budget 2001-02] |
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[Read more on Budget 2002-03] |
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| Key Positives |
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| Rural penetration levels are still low. Also, according to estimates, only about 7-8% of the total food production is consumed in processed form (US$ 75 bn). This speaks for itself, highlighting the scope for growth. The focus on road, rail and power development will indirectly benefit the FMCG industry in the long run. |
| As growth has shown signs of slackening companies are increasingly focusing on key products and brands, cost efficiencies and rural markets. This is a sign of market sophistication, both from the manufacturer's point of view as well as the consumer's point of view. |
| Owing to India's cost advantage, many MNC companies have started using their Indian operations as their manufacturing base. Alternatively, some Indian companies have tested foreign shores like Bangladesh, Sri Lanka and the Middle East among others. |
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| Key Negatives |
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| Weakness in the economy has led to a slowdown in demand for FMCG products. The topline growth of many FMCG majors has thus, declined. The economy numbers still look sluggish and there are fears that the lag effect of the weak monsoon will be felt in the second half of fiscal 2004. |
| The infrastructure for free transport of goods is not adequate in the country. Also, though the government has taken steps to introduce VAT, there are still concerns about the future tax structure. |
| A large part of the branded market continues to be threatened by spurious goods and illegal foreign imports. In times of weakened consumer demand such menaces continue to nightmares to large companies. |
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