Industry & Economy
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Budget
Prices falling? Just read the fine print
Our Bureau
NEW DELHI, Feb. 28
WILL your bottle of cola, packet of biscuits, roll of hard-boiled candy, or bottle of deodorant actually become any cheaper? On the face of it, of course, the Union Budget 2003 proposals are significant for most FMCG categories - ranging from aerated soft drinks to biscuits and confectionery to personal care products to tea to refined oils and vanaspati. But the fine print suggests that the proposals will have little impact on consumer prices across most FMCG categories.
Take the Rs 7,000-crore aerated soft drinks industry. A significant excise reduction from 32 per cent to 24 per cent notwithstanding, consumer prices are not likely to be brought down any further. The reason - the simultaneous reduction in tax abatement (the actual price on which excise is calculated and not on the MRP) from the existing 50 per cent to 45 per cent, which will substantially erode the impact of lower excise duty on industry and consumers. Said Mr Sunil Gupta, Vice-President, Coca-Cola India, "We have already reduced prices, and are making large investments in our operations this year." Just last month, both Coca-Cola and PepsiCo had announced a 15-25 per cent price reduction across their brands. While prices for 200 ml returnable glass bottles were brought down to Rs 5 from Rs 7, prices of 300 ml glass bottles were reduced from Rs 10 to Rs 8. The Rs 5-price point has now become a significant selling point for both cola companies. Added a PepsiCo official, "While reduction of excise duty is a welcome move, effective reduction in excise duty works out to 2.8 per cent, taking into account the five per cent reduction in abatement. The recent 20 per cent drop in prices of our brands is a considerably greater reduction than the 2.8 per cent relief."
The bakery and confectionery sector faces a similar predicament. While the Budget has proposed to reduce the excise duty on biscuits and boiled sweets from 16 per cent to 8 per cent, abatement on both boiled sweets and sugar confectionery (excluding white chocolate) has been reduced from 40 per cent to 35 per cent of the retail sale price (RSP).
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