FMCG- gets better consumption

MUMBAI: As Mr. Pranab Mukherjee has said, “a single budget speech cannot solve all our problems, nor is the Union Budget only instrument to do so.” Thus we could look at the budget as a fiscal document and expect reforms like “power plays” outside the budget to encourage short/medium term demand and to keep the markets booming.

Budgets 2008-09 & 2009-10 both are considered to be populist budgets. Union budget 2008-09 was the last budget presented by UPA government in its first session. Hence this budget was prepared by keeping in mind the upcoming 2009 general elections. While the budget 2009-10 was the first budget of UPA government, after coming into power for the second time. This budget was prepared by keeping in mind the coming five years & economic slow down.

Impact on FMCG sector

FMCG sector is country’s fourth largest growing sector. A small change in taxation and this sector gets affected.

Union budget 2009-10 is considered to be a rural booster budget. Hence in this budget more importance is given to rural development that is NREGA(National Rural Employment Guarantee Act). This has given boost to FMCG sector in the rural market. FMCG companies are witnessing 40% growth in rural area as compared to 25% in urban area. Even abolition of Fringe Benefit Tax will add to its profit as this tax adds cost unnecessarily. Even exemption on the personal income tax would help this sector, as it will allow consumer to have more money & spend more money. GST is a tax on consumption and FMCGs form the core of the consumption basket. The government's announcement regarding GST will usher in a single tax regime across product categories. It will lead to rationalisation and simplification of the consumption tax structure at both the centre and state levels, thus bringing relief to the consumers.

     

Union budget 2008-09 saw increment in excise duty on non-filter cigarettes. This was negative for tobacco industry. Further, reduction on excise duty on paper & paperboard would boost demand. It also saw reduction in excise duty on water purification devices, packaging material & breakfast cereals. While tea & coffee mixes saw reduction of excise duty from 16% to nil. Custom duty reduction on bactofuges from 7.5% to nil will help in more shelf life for dairy products.