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Higher excise duty on non-filter cigarettes. |
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Reduction in excise duty from 16% to nil on tea and coffee mixes. |
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Reduction in excise duty from 16% to 8% on water purification devices, specified packaging material and breakfast cereals. |
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Tea Fund to get Rs 400 m special support fund, while Tea Research association would get Rs 200 m. |
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Customs duty on bactofuges reduced from 7.5% to nil |
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Excise duty on paper, paper board and articles manufactured out of non-conventional raw materials reduced from 12% to 8% with a further reduction on clearances up to 3,500 MT from 8% to nil. Excise duty on certain varieties of writing, printing and packaging paper is to be reduced from 12 %to 8%. |
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General CENVAT rate on all goods reduced from 16% to 14%. |
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Central sales tax rate reduced from 3% to 2%. |
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Higher excise duty on non-filter cigarettes will bring it on par with both filter cigarettes. This is negative for the tobacco segment, which is already highly taxed. |
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Reduction in excise duties on packaging products would provide thrust to the packaging segment. It would also help reduce wastage and spoilage. |
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Reduction in excise duties on tea, coffee, water purification devices and breakfast cereals would lead to reduction in their cost and spur demand. Further, funds provided for re-plantation and rejuvenation of tea and coffee would improve the production. |
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Customs duty reduction on bactofuges would benefit dairy industry and increase shelf life of milk. |
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ITC has leading brands in the non-filter segment like Scissors, Hero, Bristol, and Capstan. While higher excise duty would reduce its sales volumes in non-filter segment, no increase in excise on filtered cigarettes is positive. Further, reduction on excise on paper and paperboard would boost demand. |
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Reduction in water purification devices would help Hindustan Unilever by way higher demand for its product ‘Purefit’ that it recently launched. |
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Reduction in excise on tea, coffee and breakfast cereals would help companies like Tata Tea, HUL, Nestle, McLeod Rusell. Also the funds provided for plantation crops would benefit Tata Tea, Tata Coffee and Mcleod Rusell. |
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Packaging materials is one area where most FMCG companies had expectations from the budget. The reduction in duties would drive growth in the processed foods and personal care segment. Essel Propack, Paper Products and FMCG companies in food segment like HUL, ITC, Nestle and Britannia would benefit. |
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FICCI's wishlist |
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The VAT on processed foods should be reduced from existing high levels. The perishable foods should attract VAT of 0% whereas non-perishables should attract VAT of 4%. |
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Excise duty should be reduced, while central excise should be exempted. Taxes should be converged instead of charging multiple taxes. |
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Infrastructure status should be accorded to agri-processing industry. Tax breaks and incentives should be given to the food processing industry as it establishes a vital linkage and synergy between the two pillars of the economy-industry and agriculture. Further, establishment of cold chain and other modernized technology for up gradation of storage handling and transportation should be granted infrastructure status and the tax benefit to spur its growth. |
| Confederation of Indian Industries |
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The 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. |
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Thrust on better packaging should be made. Import duty on packaging machinery should be nil. Incentives, wherever necessary, should be given to the input side like capital goods, infrastructure development, new technology, etc for the domestic packaging industry. Also the taxes should be rationalised. These initiatives would help to reduce the wastages and raise the quality of exportable food products. |
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Pro-rural policies to promote the growth of rural areas. As per ASSCHOM, FMCG sector will be witnessing more than 50% of its growth in the rural and semi-urban segments by 2010.
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| Budget 2005-06 |
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Budget 2006-07 |
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Budget 2007-08 |
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Increase in customs duty of refined palm oil to 75%
Excise duty on dairy machinery hived off from 16%.
Implementation of VAT across all states
Concessional rate of 5% custom duty on tae and coffee machinery
Excise duty on preparations of meat, poultry and fish halved to 8%
Excise duty on food grade hexane (used in the edible oil industry) halved to 16%
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Excise duty on Condensed milk abolished (16% earlier).
Excise duty on Pectines and Pectates, used as a gelling agent in Jams and Jellies abolished (16% earlier).
Excise duty on unbranded edible preparations of oil increased from nil to 8%.
Excise on biscuits manufactured without aid of power will now attract a duty of 8% (nil earlier).
Excise duty on Pasta reduced from 16% to nil.
Excise duty on ice-creams exempted
Excise on ready to eat packaged food reduced from 16% to 8%
Excise on instant food mixes exempted
Excise on soaps manufactured without power will now attract 16% duty
Excise duty on processed meat, fish and poultry products reduced from 8% to nil.
Excise duty on yeast exempted
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Farm sector has been given the top priority. Agriculture investments to go upto 2% of GDP.
Duty on edible oil has been reduced.
Customs duty on food processing machinery and their parts is being reduced from 7.5% to 5%. Excise duty has been fully exempted on biscuits of per kilogram retail sale price equivalent of Rs.50 per kg or less.
Excise duty on food mixes, including instant food mixes, has been reduced from 16%/ or 8% to Nil.
Free samples and displays are exempt form the purview of FBT.
Venture capital investing in dairy industry will get a pass through status.
Better rural infrastructure development to be an area of focus.
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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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| Rural penetration levels are still low: According to estimates, only about 7% to 8% of the total food production is consumed in processed form (US$ 75 bn). This speaks for itself, highlighting the scope for growth. The planned development of roads, ports, railways and airports, will increase FMCG penetration in the long term. |
| Newer products: 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. With rising consumerism and changing lifestyle the demand for value added products is increasing. |
| Cost advantage: 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 other. |
| VAT: The proposed introduction of VAT at the start of FY06 is a long term positive for the FMCG sector. This had been a long pending demand of the FMCG sector. Post this; the tax ambiguity will get reduced, benefiting the sector. |
| Retailing: FMCG companies have partnered with modern retailing stores and as this format is the future. Growth will be faster because modernisation of the retail sector will be reflected in rapid growth in sales of supermarkets, department stores and hypermarkets, because of the growing preference of the affluent and upper middle classes for shopping at these types of retail stores, given the conveniences they offer such as shopping ambience, variety and a single-point source for purchases. |
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| Key Negatives |
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| Competition: New entrants in the sector have heightened competition in key segments like soaps and detergents, putting pressure on profitability |
| Higher input costs: The companies witnessed rise in the input prices during the year. Higher crude, wheat, palm oil prices amongst others pressurized the margins. Though the companies took effective price hike of the final products, a further hike would lead to loss of market share. |
| Infrastructure: The infrastructure for free transport of goods is not adequate in the country. Also, the fall in agricultural output continues to cast on FMCG sector's prospects in the short term. |
| Spurious goods: 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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Higher penetration, per capita consumption, increasing population base, and rising household income continued to drive the growth in the FMCG sector in FY08. The Rs 700 bn FMCG sector grew by 12% YoY in 2007. Rural regions, where nearly 70% of India's population resides, accounted for 34% of the off take for FMCG products. Since urban regions are already matured, the rural region is expected to be the key growth driver. In urban areas, introduction of newer, convenience and higher end products propelled the growth. However, concerns with respect to the increasing competitive environment, input cost pressures and infrastructure bottlenecks continued to worry.