Budget 2004: Paints
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Continuation in interest exemption on housing loans. Besides, income from housing projects for the construction of residential units of prescribed specification and approved from local authorities is exempt from income tax. This exemption is available for project that is approved upto March 31, 2005. |
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Apart from initiating new road projects, poverty eradication through spending in health, education and housing has been given priority. |
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Reduction in peak customs duty reduced from 30% to 25%. |
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As against the general expectation of reduction in interest exemption on housing loan and industry wish list of a hike in the same, the Finance Minister has taken a conservative ground by maintaining at the same level of Rs 150,000 per annum. Also, income tax exemption for housing projects is also a step in the right direction. This is a positive for the paint sector, as the industry has benefited immensely from housing sops in the past. |
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The paint industry has grown at 1.5x-2x GDP, depending on the performance of the industrial sector. Paint demand has slowed down in the last two years in light of poor economic performance, which is primarily due to erratic monsoon and lack of investment demand. Now that the government has given due consideration to address this concern of slower economic growth by spending on infrastructure, paint demand could rise over a period of time. The economic benefits of road construction project are apparent from industrial sector performance in FY03.
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As a continuation of the last year's budget, peak customs duty has been reduced. This is beneficial for paint companies since key raw materials like titanium dioxide are imported. Just to put things in perspective, raw material costs as a percentage of sales for Asian Paints in FY02 stood at 49%. Imports, in the same period, accounted for as high as 76% of raw material costs. We expect paint majors to benefit from such a measure in the long run.
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While input costs have become cheaper, it has also got to be mentioned that finished product i.e. paints in this case, also attract similar customs duty of 25% from FY04. This is a threat to domestic paint majors. Though majors like Asian Paints, Goodlass and Berger have a strong distribution reach, the threat of cheaper imports cannot be ignored in totality.
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The government has indicated that it will bring down the import duties to 20% in the next two years. We hope that by doing this the government will also consider to correct the anomaly in the duty structure under which the duty of Rutile, one of the major raw material used for paint manufacturing, attracts a duty of 30% which is same as that of the import of finished paint. The duty on this raw material should be less than that of finished paints. |
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The government has given great impetus to the housing industry and I hope that the same consideration will be given in the current budget also. Housing sector revival boosts the growth of the general economy and thereby the paint industry. I request the finance minister to increase exemption of interest from taxable income on housing loans and provide further incentives to boost the sector. |
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The government should give incentives to companies that invest money in R&D activities by way of weighted deductions for revenue spends and accelerated depreciation rates for investment in R&D equipments. This will help the Indian industry to become globally competitive. |
| Budget 2000-01 |
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Budget 2001-02 |
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Budget 2002-03 |
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| Reduction in basic customs duty to 35% from 40%.
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Increase in housing loan interest exemption to Rs 150,000.
Dividend tax reduced to 10%
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Peak customs duty reduced to 30% from 35%.
Continuation in housing incentives.
Administered interest rates lowered by 50 basis points.
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| [Read more on Budget 2000-01] |
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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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Very low consumption levels compared to other developing economies. |
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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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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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| Key Negatives |
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Absence of investment in the economy continues to have a big impact on the industrial sector. |
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The fiscal state of the economy is a cause of concern. Slower progress of reforms (especially land reforms that are vital for the sector) is also limiting growth prospects of the economy. |
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In the short-term, the sector could be affected by poor monsoon in 1HFY03 and the sharp spurt in crude prices. Raw material costs have already strengthened in recent times. |
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