Excise duty hike may not push prices of consumer goods

Right step Footwear makers, on the other hand, will lower prices of leather products priced above Rs 1,000, given a reduction in excise duty to six per cent in the Budget

A marginal 0.14 per cent increase in excise duty is unlikely to affect prices of consumer goods. The rise, if any, will be minimal, suggests Saugata Gupta, managing director of Marico, the maker of the Parachute and Saffola brands.

“The excise duty has been rounded off to 12.5 per cent from 12.36 per cent. This will hardly affect consumer goods prices. For me, the big takeaway from the Budget was the emphasis on overall development — whether in infrastructure, education or rural. This will help improve disposable incomes, which will, in turn, improve consumption, increasing offtake of consumer goods,” he says.

Dabur India Chief Executive Sunil Duggal says: “The Budget seeks to put the economy on the fast track. The government seems to be taking the reforms agenda forward. This will not only boost overall confidence but go a long way in boosting employment, and help boost domestic demand of products.”

Specifically, the government has indicated a firm timeline for rollout of the goods & services tax (GST), of April 1, 2016. That is something all companies of consumer goods — from staples to discretionary items — had been lobbying for. Videocon Industries Director Anirudh Dhoot says: “The indication of a GST timeline is welcome; that will pave the way for a common national market, where you have one applicable tax rate, as opposed to multiple rates.  Again, the service tax increase of 1.64 per cent is steep. But it was done keeping the GST road map in mind. Additionally, import duty on organic or OLED TVs has been removed. This was something we were demanding, as these products are expected to pick up in the domestic market in coming months. Also, Customs duty on certain LED components, such as backlights, have been abolished which will reduce assembling costs.”

Manish Sharma, managing director of Panasonic India and president of the Consumer Electronics and Appliances Manufacturers Association (CEAMA), says the Budget has given a boost to domestic manufacturing, and endeavoured to make products affordable for consumers. “The reduction in basic Customs duty on 22 items and a reduction in tax on royalty will encourage indigenous manufacturing and technology proliferation. The move to remove the special additional duty on information technology products gives the much-needed relief to manufacturers.”

While excise duty on most products has been capped at 12.5 per cent, the basic excise duty on flavoured water has been increased to 18 per cent. The government, however, has removed additional excise duty on mineral water, implying a mixed bag for beverage makers like Coca-Cola, PepsiCo and Bisleri. It is unclear whether they will react to these moves with price hikes in the near term. However, peanut butter and condensed milk manufacturers might likely raise prices after a two per cent excise duty without Cenvat, or a six per cent excise duty with Cenvat credit, levied on them in the Budget. Footwear makers, on the other hand, will lower prices of leather products priced above Rs 1,000, given a reduction in excise duty to six per cent in the Budget.