As tax holiday ends, FMCG firms redraw production plans in hills

Companies like P&G & Cadbury are looking south after the expiry of tax incentives in hilly states

Consumer goods major Marico’s surprise exit from Uttarakhand recently has put the spotlight on fast-moving consumer goods (FMCG)  companies operating in the two hilly states, the other being Himachal Pradesh.

Marico said it had stopped manufacturing activity at its Selakui plant, near Dehradun. It has initiated steps to close the plant. The maker of Parachute coconut oil and Saffola edible oil did not give reasons for its move, adding the move would have no “material impact” on the firm’s overall production. Uttarakhand government officials hinted Marico’s exit follows expiry of the 10-year tax holiday initiated by the erstwhile NDA government in 2003-04.

Thanks to the scheme, Uttarakhand alone had attracted investments worth about Rs 36,000 crore between 2003 and 2010 from sectors like pharma, FMCG and auto. Of this, FMCG investments are believed to be in the region of  about Rs 4,000 crore.

In HP, FMCG investments are to the tune of about Rs 5,000 crore out of about Rs 17,000-crore investments the state had attracted following the announcement, says Rajendra Guleria, president, Baddi-Barotiwala-Nalgadh (BBN) Industries Association. Bulk of the investments are in the BBN corridor.

Guleria admits  the pace of investment in the industrial corridor in the past three years has slowed, as tax incentives began to expire. In March 2010, the full excise duty waiver on companies that set up their units in the two hilly states was withdrawn. This was followed by the expiry of the 50 per cent income tax waiver in March 2012 and the 15 per cent central investment subsidy in January 2013.

“In the past three years, investments have been to the tune of Rs 1,500 crore largely in expansion of existing plants. There have been no new investments in greenfield projects,” Guleria said.

Pankaj Gupta, president, Industries Association of  Uttarakhand, said, “The quantum of investments have begun to come down. Obviously, there was an advantage that firms had when they came here. Their investments now would be based on factors such as proximity to consumption markets, transportation, logistics, etc.”

Procter & Gamble (P&G) and Cadbury, which have units in HP, are setting up large plants in Andhra Pradesh (AP). P&G is set to make operational one of the largest manufacturing facilities in Asia on the outskirts of Hyderabad. This unit will roll out P&G products like Gillette, Tide, Vicks, Ariel, Pampers and Head & Shoulders. P&G executives had indicated that the company had spent nearly Rs 400 crore on the project, which would start functioning by April 2014. Cadbury, meanwhile, has just inked a memorandum of understanding with the  AP government for setting  up its largest manufacturing facility in the Asia-Pacific region.

The plant would serve up to 50 per cent of Cadbury India’s needs once it becomes fully operational, company MD Manu Anand said. The plant would be commissioned in four phases, the first part of which would involve an investment of Rs 1,000 crore, Anand added.

Besides P&G and Cadbury, Johnson & Johnson and PepsiCo are also looking to set up new plants in Andhra Pradesh.