FMCG: Given push to move fast
Cut in excise on cosmetic is positive but adverse sentiments generated by the budget reduces the charm
Budget provisions
For the FMCG sector the union budget 2002-03 has the following important measures:
Reduction in excise on Cosmetics and Toiletries from 32% to 16%
Increase in excise duty on toothbrushes and Footwear costing upto Rs125/- per pair from 4% to 8%.
MRP based assessment extended to a few more categories such as sugar confectionery not containing cocoa (including white chocolate) and preparations of other sugar, Coloring matter and preparations based on colouring matter and Art colors packed in various forms.
The National Dairy Development Board Act, 1947 will be modified to remove the income-tax exemption available to NDDB.
Aerated soft drinks and soft drink concentrates will continue to attract a 32% excise levy.
The following products have been brought under MRP based assessment:
| Sugar Confectionery not containing cocoa (including White Chocolate) |
| Preparations of other sugar |
| Colouring matter and preparations based on colouring matter |
| Dyes and colors used for laboratory or domestic purposes |
| Art colors packed in various forms |
| Resin Cements, painters fillings, surfacing preparations for facades, indoor walls, floors, ceilings, etc |
Import duty on non-edible oil (used in soap manufacture) reduced from 35% to 30%. However the 30% rate will apply only to oil where free fatty acid content is greater than 20%.
The Special excise duty of 16% has now been restricted to just few products. Prima-facie the list mentioned suggests that cosmetics and toiletries are excluded from that list. This means that the 16% cut will be a huge cut as currently the excise duty on cosmetics and toiletries is at 32%, which included a special excise duty of 16%.
With the above changes, Cosmetics and Toiletry manufacturers like HLL and Godrej Consumer Products will be the largest beneficiaries in the segment as lower duties should enable price reduction and spur consumption.
The personal care segment of HLL contributed about 16% to the company’s turnover and thus Lever will be a significant beneficiary on account of this change in applicability of special excise duty.
For Godrej Consumer Products, the reduction in excise duty on toiletries and cosmetics from 32% to 16% will be extremely beneficial. The reduction in import duty on major raw materials from 35% to 30% will also be useful.
Lower excise duty on toiletries such as shampoo will not have any impact on Procter and Gamble, as it has discontinued manufacture of shampoos.
New items brought under MRP based assessment will negatively impact sugar confectionery manufacturers like Cadbury, Nestle and Parry's, and Art color manufacturers like Pidilite and Camlin.
Revised Duty structure:
Excise duty:
| Beverages & Foods products |
2000-01 |
2001-02 |
2002-03 |
| Sugar confectionery |
16 |
16 |
16 |
| Chocolate etc with cocoa |
16 |
16 |
16 |
| Chewing gum |
16 |
16 |
16 |
| Malted foods |
16 |
16 |
16 |
| Condensed milk |
16 |
16 |
16 |
| Ice cream |
16 |
16 |
16 |
| Infant foods |
Nil |
Nil |
Nil |
| Biscuits in retail packs upto 100 gms costing < Rs5 |
8 |
16 |
16 |
| Biscuits |
16 |
16 |
16 |
| Waffles and Wafers having chocolate |
16 |
16 |
16 |
| Jams, jellies, sauces, juices, soups |
16 |
0 |
0 |
| Cereal food products/Noodles |
16 |
16 |
16 |
| Other branded and packed Foods |
16 |
16 |
16 |
| Bottled Mineral Water |
16 |
16 |
16 |
| Aerated Waters |
40 |
32 |
32 |
|
| Personal/ household care products |
2000-01 |
2001-02 |
2002-03 |
| Cosmetics/toiletries |
32 |
32 |
16 |
| Perfumes |
50 |
50 |
50 |
| Toothpowder |
Nil |
Nil |
Nil |
| Toothpaste |
16 |
16 |
16 |
| Tooth Brush |
0 |
4 |
8 |
| Hair Oils ,etc |
16 |
16 |
16 |
| Toilet Soap |
16 |
16 |
16 |
| Washing Soap |
16 |
16 |
16 |
| Detergents |
16 |
16 |
16 |
| Insecticides (formulation) |
16 |
16 |
16 |
|
| Others |
2000-01 |
2001-02 |
2002-03 |
| Footwear |
16 |
16 |
16 |
| Foot wear upto Rs125 per pair |
16 |
4 |
8 |
| Cinematographic films |
16 |
16 |
16 |
| X Ray films |
16 |
16 |
16 |
| Photographic plates, films, paper & chemicals |
16 |
16 |
16 |
| Photographic cameras |
16 |
16 |
16 |
Customs duty:
| Beverages & Foods products |
2000-01 |
2001-02 |
2002-03 |
| Sugar confectionery |
35 |
35 |
30 |
| Chocolate etc with cocoa |
35 |
35 |
30 |
| Chewing gum |
35 |
35 |
30 |
| Malted foods |
35 |
35 |
30 |
| Condensed milk |
35 |
35 |
30 |
| Ice-cream |
35 |
35 |
30 |
| Infant foods |
15 |
15 |
15 |
| Dairy products other than milk powder |
35 |
35 |
30 |
| Skimmed milk powders |
0 |
0 |
0 |
| Biscuits in retail packs upto 100 gms costing < Rs5 |
35 |
35 |
30 |
| Biscuits |
35 |
35 |
30 |
| Waffles and Wafers having chocolate |
35 |
35 |
30 |
| Jams, jellies, sauces, juices, soups |
35 |
35 |
30 |
| Cereal food products/Noodles |
35 |
35 |
30 |
| Bottled Mineral Water |
35 |
35 |
30 |
| Aerated Waters |
35 |
35 |
30 |
|
|
|
|
| Personal/ household care products |
2000-01 |
2001-02 |
2002-03 |
| Cosmetics/toiletries |
35 |
35 |
30 |
| Toothpowder |
35 |
35 |
30 |
| Toothpaste |
35 |
35 |
30 |
| Hair Oils ,etc |
35 |
35 |
30 |
| Toilet Soap |
35 |
35 |
30 |
| Washing Soap |
35 |
35 |
30 |
| Soaps, Detergents |
35 |
35 |
30 |
Industry reaction:
Happy by the budget, Adi Godrej, CMD, Godrej Consumer Products said, "For Godrej Consumer Products, the reduction in excise duty on toiletries and cosmetics from 32% to 16% will be extremely beneficial. The reduction in import duty on our major raw materials from 35% to 30% will also be useful.
The increase in surcharge on corporate taxes from 2% to 5% is a step in the wrong direction. Reintroduction of taxes on dividends, is also a move backwards."
Industry Scenario:
This sector is dominated by multinational and Indian players like Hindustan Lever, Nirma, Godrej Consumer Products. Other minor players include Colgate Palmolive, Reckitt Benckiser. However, HLL is the market leader in the various segments of the sector like personal wash (59%), fabric wash (39%), household care (65%), skin care (55%), talcum powder (62%).
While soaps and detergent market witnessed negative growth in 2001, oral and skin care market witnessed low growth rates. Personal wash and fabric wash segments witnessed negative growth of 9.3% and 2%. Only dishwash show 13.2% growth. Toothpaste recorded 2.4% growth and skin care segment grew 4.4%. Sales of talcum powder was lower by 0.6%. Only shampoo recorded healthy 10.6% growth.
Currently, the level of consumption of toilet soaps in India is quite low compared to other countries. The primary reason for the low consumption has been because of the lack of affordability of these products to a large section of the society, particularly in the rural areas.
Industrial oils constitute a major input and significantly impacts the cost of soap. Domestic availability of industrial rice bran oil has been continuously declining and the shortfall is being met by the soap industry through import of industrial oils like palm fatty acid distillate, crude palm stearine etc. The high rate of customs duty of 35% on such oils has adversely affected the growth prospects of the toilet soap manufacturers.
Synthetic detergents are items of mass consumption and linear alkyl benzene (LAB) constitutes a key input accounting for about 45% of costs. The price of indigenously produced LAB is linked to international prices, exchange rate and import duties. The price of LAB has increased by 45% during last 3 years while the price of detergents in the same period has gone up by 10%.
Companies to watch
Hindustan Lever and Godrej Consumer Products
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