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This article was first published 13 years ago

A mixed bag for the FMCG sector

Last updated on: March 1, 2011 11:45 IST


Cut in excise duty on baby, clinical diapers, adult diapers and sanitary napkins

Budget provisions

An allocation of Rs 1,60,000 crore, an increase of 17% Y-o-Y towards social sector schemes such as Bharat Nirman and MGNREGA

NREGA wage rate to be indexed to consumer price index

Remuneration of Anganwadi workers increased from Rs 1500 per month to Rs 3000 per month and for Anganwadi helpers from Rs 750 per month to Rs 1500 per month.

Exemption limit for the general category of individual taxpayers enhanced from Rs 1,60,000 to Rs 1,80,000 giving uniform tax relief of Rs 2000. For Senior citizen of age of 60 years but less than 80 years, the tax exemption above Rs 250000 and senior citizen above 80 years age exemption is above Rs 500000.

Current surcharge of 7.5% on domestic companies proposed to be reduced to 5%

Rate of Minimum Alternative Tax (MAT) increased from 18% to 18.5% of book profits.

Lower rate of 15% tax on dividends received by an Indian company from its foreign subsidiary.

To stay on course for transition to GST.

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A mixed bag for the FMCG sector


Direct Taxes Code (DTC) to be finalized for enactment during 2011-12. DTC proposed to be effective from April 1, 2012.

Central Excise Duty to be maintained at standard rate of 10%. Base rate on excise duty raised to 5% from 4%

Standard rate of Service Tax retained at 10%.

To improve rice based cropping system Eastern Region, allocation of Rs 400 crore has been made.

Allocation of Rs 300 crore to bring 60,000 hectares under oil palm plantations. Initiative to yield about 3 lakh Metric tonnes of palm oil annually in five years.

Will set up 15 more Mega Food Parks during 2011-12.

Removal of supply bottlenecks in the food sector will be in focus in 2011-12

Cold storage chains to be given infrastructure status.

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A mixed bag for the FMCG sector


The exemption from basic excise duty on paws, mudis and the like is being withdrawn and a Tariff rate of 5% is being prescribed for the tariff items falling under tariff heading 1901 10 10, 1901 10 90, 1902 (other than 1902 40 10 and 1902 40 90) and 1903 00 00.

However a concessional rate of 1% without CENVAT credit facility is being imposed on items of tariff heading 1901 10 which are put up in unit containers and pasta, sphagetti, macaroni, noodles etc., tapioca and substitutes.

The exemption from basic excise duty on coffee or tea pre mixes, sauces, ketchup and the like, soups and broths and preparations, all kinds of food mixes, including instant food mixes, betel nut product known as 'supari', ready to eat packaged food, milk containing edible nuts with sugar or other ingredients is being withdrawn.

However these goods would be subject to the concessional rate of 1% without CENVAT credit facility.

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A mixed bag for the FMCG sector


A concessional rate of 1% without CENVAT credit facility is being imposed on fruit pulp or fruit juice based drinks, flavored milk of animal origin, tender coconut water.

Basic customs duty is being reduced from 30% to 10% on Bamboo for use in the manufacture of agarbatti.

Basic customs duty on Crude Palm Stearin imported for the manufacture of laundry soap, is being reduced from 20% to nil on actual user basis

De-oiled rice bran cake exempted from import duty while export duty of 10% is being levied on it.

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A mixed bag for the FMCG sector


Excise duty on baby and clinical diapers & adult diapers and sanitary napkins is being reduced to 1% without cenvat credit facility. The general effective rate of 5% is also being prescribed on these goods without any conditions.

Exemptions from excise duty on tooth powder, is being withdrawn and concessional duty of 1% without CENVAT credit facility is being imposed on such good.

However, duty the general effective rate of 5% without any condition is also being prescribed.

. . .

A mixed bag for the FMCG sector


Industry expectation

Continued thrust and higher allocations to social and developmental programs

Increase in tax slabs for personal income tax

No change in excise rate

No increase in excise duties for cigarettes, given strong increase last year

Increase in service tax from 10% to 12%

Reduction of MAT rate - currently applicable at 18%

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A mixed bag for the FMCG sector


Budget impact

There wont be much budget impact on the FMCG sector. Abolition of custom duty on crude palm stearin will helps reduce manufacturing cost in a scenario of high raw material cost inflation for soap maker.

The stable excise duty on cigarette is good news for ITC which was expected to move up by single digit as per expected by most of the people.

MAT rate have been increased from 18% to 18.5%.

However surcharge has been decreased from 7.5% to 5% thus effective MAT rate unchanged at around 20%. Marginal corporate tax rate will come down by 0.8%, owing to reduction in surcharge.

. . .

A mixed bag for the FMCG sector


Stock to watch

Procter & Gamble Hygiene & Healthcare, Hindustan Unilever, ITC, Godrej Consumer Products.

. . .

A mixed bag for the FMCG sector


Outlook

The budget was positive for the sanitary napkin producers, but otherwise it was largely neutral for the FMCG sector.

Even, increase in tax slab will not yield much, as it will just give Rs 2000 more in the hands of consumer.

Also, FM didn't announce any hike in National Rural Employment Guarantee Scheme.

But the good news was there was no hike in excise duty of cigarette which is good news for ITC.

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