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Budget 2010-11: FMCG

With higher disposable income in urban households and a significant portion of budget allocation towards the development of the rural sector and rural employment, the FMCG sector has a lot to gain from Union Budget 2010-11. While the sector was getting jittery regarding food inflation and the effect it would have on demand for FMCG, the Finance Minister has outlined several proposals to help boost agriculture growth. Better access to rural areas through an improved road network will also enhance the distribution system of FMCG players. These proposals are likely to keep the FMCG sector buoyant in the current year.

 Budget Measures

  • Focus on strengthening of food security.
  • Launch of a four prong strategy to promote agriculture sector. This strategy includes extending the green revolution to the eastern states, reduction of wastage in produce, increase in credit support and thrust on food processing sector.
  • Allocation of Rs 661 bn toward rural infrastructure development. Provision of a further 73 bn towards Backward Region Grant Fund to develop infrastructure in backward areas.
  • Allocation of Rs 401 bn towards Mahatma Gandhi National Rural Employment Guarantee Scheme (NREGS).
  • Adjustment in income tax slabs thereby increasing the in-hand income for 60% of the tax payers.
  • Increase in duty of cigarettes, cigars, cigarillos, non smoking tobacco and branded unmanufactured tobacco
  • Concessions and exemption of duties on handling and racking equipment in warehouses and mandis.
  • Concessional duty and exemption from service tax for setting and expansion of cold storages, cold units and refrigeration units.
  • Increase in MAT rate from 15% to 18% of book profit.

     Budget Impact

  • Various schemes for rural development will help improve the living standards in the rural area and help provide FMCG companies better access to the rural heartlands.
  • Employment guarantee schemes will help provide an additional source of income to the rural youth thereby increasing their spending ability.
  • Readjustment of tax slabs will help increase the disposable income in the hands of urban consumers.
  • Increase in duty on toilet preparation will increase prices of sanitary napkins.
  • Concessional duties and exemption of service tax will help setting up of cold storages, cold units and refrigeration units.
  • Decrease in excise duty on corrugated boxes and cartons will reduce packaging costs.

     Company Impact

  • Focus on rural spending is a big positive for most FMCG companies that have started targeting the rural sector. These include HUL, ITC, Marico, Godrej, Dabur, etc
  • Spending on roads and concessions for setting up warehousing and cold storages is a big positive for companies like Nestle, HUL, ITC and Britannia as it would help provide better logistics and lower wastages.
  • Reduction in duty of replaceable kits for household type water filters is a positive for HUL which has launched a water filter nationally.
  • Reduction in excise duty for corrugated boxes and cartons is a positive for all FMCG companies as it will help reduce packaging costs
  • Increase in excise duty for cigarettes and tobacco is a negative for companies like ITC, VST and Godfrey Phillips as it will increase the price of cigarettes.
  • Increase in duty for sanitary napkins is a negative for P&G as it will increase the price of its sanitary napkins.

    Budget Impact: FMCG Sector Analysis for 2009  | FMCG Sector Analysis for 2011
    Latest: Performance Of FMCG Stocks | FMCG Sector Report

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    Sector Performance
    ARCHIES 11.6
    BATA INDIA 1,361.3
    COLGATE 1,436.9
    DABUR 506.5
    EMAMI 362.4
    GILLETTE INDIA 5,307.6
    HUL 2,176.1
    JYOTHY LABS 146.1
    MARICO 357.2
    P&G HYGIENE 10,246.8