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FMCG: Gets a few indirect benefits

By Capital Market
July 07, 2009 18:27 IST
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The thrust on agriculture, removal of Fringe Benefit Tax etc should help improve the earnings of the FMCG sector.

Budget Provisions

  • Increase in agriculture credit flow to Rs 325,000 crore.
  • Allocation of loan to farmer up to Rs 300,000 at the rate of 7%.
  • 144% increase in allocation for National Rural Employment Guarantee Scheme (NREGS) to Rs 39,100 crore.
  • Increase in exemption limit in personal income tax by Rs 15,000 to Rs 2.40 lakh for senior citizens; by Rs 10,000 to Rs 1.90 lakh for women tax payers; and by Rs 10,000 to Rs.1.60 lakh for all other categories of individual taxpayers.
  • Eliminating the surcharge of 10% on personal income-tax.
  • Fringe Benefit Tax (FBT) on the value of certain fringe benefits provided by employers to their employees to be abolished.
  • Introduction of the Goods and Services Tax with effect from April 1, 2010.
  • Minimum Alternate Tax to be increased to 15% of book profits from10%. The period allowed carrying forward the tax credit under MAT to be extended from seven years to ten years.
  • List of specified raw materials and equipment imported by manufacturer-exporters of footwear industry, which are fully exempt from customs duty, subject to specified conditions, to be expanded.
  • Concessional customs duty of 5% on specified machinery for tea and coffee and to be reintroduced for one year, up to July 6, 2010.
  • Customs duty on 'mechanical harvester' for coffee plantation to be reduced from 7.5% to 5%. CVD on such harvesters has also been reduced from 8% to nil, by way of excise duty exemption.
  • No change in excise duty on food items including biscuits, sharbats, cakes and pastries, which are presently at 4%, level.
  • Excise duty rate on items currently attracting 4% to be raised to 8% with following major exceptions: Footwear of RSP exceeding Rs 250 but not exceeding Rs 750 per pair.

Industry expectation

The industry was expecting an increase in allocation for National Rural Employment Guarantee Scheme and abolition of FBT, both of which were fulfilled the finance minister.

The minister has touched some of the points on custom duty reduction for specified machinery for tea and coffee and on 'mechanical harvester' for coffee plantation which were not expected by the industry at large.

Budget Impact

The budget was partly in favor of the FMCG sector, which doesn't have direct benefit but will see the indirect effect. FMCG sector present is depending lots on the rural developments for the volume growth.

Increase in allocation for NREGS will indirectly help to increase the demand of daily requirement of FMCG products in the rural area. Also a small increase in tax exemption limits will give little bit more money in the hands of the consumer for spend.

Stock to watch

Hindustan Unilever (HUL), Dabur India, ITC and Godrej Consumer Products (GCPL).


Overall, the budget was good for the FMCG sector as rural growth and more discretionary money in hands of consumer for spends.

The fast moving consumer goods (FMCG) sector continues to perform very well for FY09 despite fall in GDP number and poor performance by the other industries. Rural income and sentiments are on an uptick due to food price inflation, loan waiver, subsidies, employment generation schemes and better farm practices.

With expected no change in excise duty and emphasis on rural development, the FMCG sector, which has seen huge growth coming form rural region is certainly going to benefit.

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