As Mr. Pranab Mukherjee prepares to present the 2011 budget, all of us have our wish lists. Corporates especially look forward to this event in anticipation of fiscal sops. While FMCG companies had a good year so far in FY10 with robust demand coupled with a benign input price scenario, they do have a wish list for the Finance Minister.
What they wish for in this budget?
Implementation of Goods and Service Tax (GST): FMCG companies want a speedy implementation of GST. This tax will replace multiple indirect taxes levied on products and would lead to a uniform, simplified and single-point taxation. This would help reduce prices. GST would also be beneficial for the government as consumption growth and improvement in tax compliance would help boost the government's tax collection kitty.
Excise Duty roll back: While excise duty rates were reduced in December 2008 and then again in February 2009 in order to give boost to the FMCG sector, there is a fear that the old excise rates would be restored. FMCG companies in the light of rising food prices are hoping that the excise duty roll back would not be reversed as it would add to the cost of the goods, thereby accelerating demand compression.
Rural focus: FMCG companies want the government to continue its focus on the rural sector in the forthcoming budget. Rural India accounts for more than 40% consumption in major FMCG categories such as personal care, fabric care, and hot beverages. Given the low penetration levels in the rural markets, FMCG companies are banking on rural areas for volume growth. Hence, companies would like the government to increase focus on education, employment generation and infrastructure development in the rural sector.
Tax exemption for consumers: Companies would like the government to lower corporate and personal tax rates. This will result in more money in the hands of consumers thereby boosting spending.
Control in prices of the commodities: With subpar monsoon, the rise in price of commodities is hurting FMCG companies both on the supply and the demand side. FMCG companies therefore want the government to take steps to control prices and focus on increasing food crop production in the long run.
Enforcement of the Trade Mark and Copyright Laws: Counterfeit products result in companies losing revenue as well as goodwill due to availability of spurious products. Therefore FMCG companies want the trademark and copyright laws enforced more strictly.
Better infrastructure facilities: FMCG companies have been suffering as a result of bad connectivity and lack of proper warehousing facilities. This has resulted in higher transportation costs, wastage of goods and an inefficient supply chain. Companies want increased focus on building of roads, warehousing facility and cold storages.
Tobacco: Cigarette companies and ITC in particular are hoping that excise duty on cigarettes is rationalized. This is because at the current rate of excise, there is a substantial difference in the price of cigarettes compared to other forms of tobacco. As a result, the consumption of cigarettes is falling.
Way forward: The government's National Rural Employment Guarantee Act (NREGA) has ensured that after the subpar monsoons last year the rural population had sufficient income to support themselves. However, rising food prices are acting as a dampener for growth of FMCG companies. Implementation of GST coupled with controlled commodity prices would benefit the FMCG sector by protecting margins and aiding growth.