Budget 2005-06: FMCG
The government focus so far has been to provide protection to the domestic companies by managing the import duty structures to the domestic advantage. In the last budget (2004-05), the government laid stress on agriculture reforms, in a bid to integrate the countrywide food market. The government also took its first tentative steps towards a VAT regime, addressing the long time demand from the industry. But the tax regime is marred by ambiguity and government's inability to get the message across to the small producers. The government's focus on road, rail and power development will indirectly benefit the FMCG industry in the long run. 

Budget Measures Surcharge of Re 1 on per kg of tea abolished Massive 'replantation and rejuvenation' for domestic tea plantations Excise duty on refined edible oils (Re 1 per kg) and vanaspati (Rs 1.25 per kg) scrapped Implementation of VAT from April 1, 2005 Import duty on cloves cut to 35 per cent  Import duty on refrigeration van halved to 10 per cent  Area specific excise duty exemption to continue To form 'National Fund for Agri Research' with initial outlay of Rs 500 m National Horticulture Mission to be commissioned in April 1 Focus on development of agriculture, manufacturing and infrastructure Corporate tax cut to 30 per cent from 35 per cent   Budget Impact The removal of surcharge on tea and duty on vanaspati and refined edible oils will have a marginally positive impact on companies like Tata Tea [Get Quote], HLL [Get Quote] and Marico. The focus on replantation and rejuvenation of tea plantations will benefit the sector over the long term, but there is nothing material in it for companies immediately. Implementation of VAT is a positive move over the long term. This is likely to pave the way for a singular tax going forward, which will help companies cut costs ands become more competitive in the long run. Reduction in duty on refrigerated vans will give a boost to the processed food industry. A positive for players like Amul, Nestle [Get Quote], HLL and Britannia [Get Quote]. Area specific excise exemptions for North East, J&K, Himachal Pradesh will continue to encourage FMCG companies to relocate to these areas. The corporate tax rate change is unlikely to benefit the FMCG companies much, as most pay an effective tax rate of less than 30 per cent anyway. The push to agriculture and rural India is likely to aid rural India's development in the long run. It has the potential to induce increased usage of FMCG products going forward. Individual tax benefits too are a positive for the sector.  Sector Outlook The implementation of VAT at the state level is a positive for the FMCG sector in the long run for reasons mentioned above. Although there might be some initial hiccups, products and brands will become more affordable and this is a step in the right direction. Focus on improving sanitation, literacy levels, assured water supply, irrigation facilities, rural electrification and telephone networking are all measures to up India's human development index. All these are likely to positively impact productivity and employment generation in rural India and drive awareness of FMCG products. Again, this is a big positive in the long run. Tax relief to individuals too, may perk up per capita usage. All in all, the industry has much to look forward too in the long run.  Industry Wish List Complete de-reservation of consumer products sector. If it happens, it will enable Indian companies to undertake manufacturing on a mass scale resulting in operational and quality efficiencies. Quality check on imported FMCG products and effective enforcement of copyright laws. This would go a long way in filtering out import of sub-quality and discarded products, benefiting both the manufacturers and the consumers. Also, there should be a comprehensive policy to hit out at contraband imports. More focus towards networking the food supply chain, which will enable free flow of food related products across the country, to the benefit of both manufacturers and consumers. For the government, it will mean effective utilisation of food stocks. As per CII, excise duty difference between 'branded' and 'unbranded' food products existing at present should be removed to encourage consumers to move from unhygienic unbranded foods to hygienically packaged processed foods.  Budget over the years Budget 2002-03 Budget 2003-04 Budget 2004-05 Increased focus on agricultural reforms with an aim to integrate the countrywide food market Deregulation of the milk processing capacity Excise duty structure largely untouched. Only for tea, the duty was reduced from Rs 2 per Kg to Re 1 Customs duty on tea and coffee doubled to 100 per cent  Duty on imported pulses upped to 80% Import duty on wine and liquor slashed from 210 per cent to 180 per cent  Excise on biscuits reduced to 8% from 16%. Excise on soft drinks and sugar boiled confectionery also reduced All states to switch to VAT in FY04 (deadline now has been extended till end FY05) Loans to agriculture and to small-scale sector will now be available at maximum 2 per cent above prime lending rate (PLR) Development plans for roads, ports, railways and airports Customs duty on alcoholic beverages reduced Increase in custom duty of refined palm oil to 75 per cent  Concessional rate of 5 per cent custom duty on tea and coffee plantation machinery Excise duty on dairy machinery reduced from 16 per cent to 0 Excise duty on preparations of meat, poultry and fish halved to 8 per cent  Excise duty on food grade hexane (used in the edible oil industry) halved to 16 per cent  Area specific excise duty exemptions to continue 20 per cent dividend distribution tax for corporates who invest in debt funds

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