The Hindu Business Line : Prices static? Not for long

SO, you thought the Budget could actually have let you off lightly? Sure, there's been no visible impact on prices of a swathe of items of daily consumption. While it was expected that the Finance Minister would bring into the excise net several food products such as milk powder, butter, cheese, fruit juices, jams and jellies and packaged tea, the Budget, however, does not tinker with any excise rates. While there will be no immediate rise in prices of these goods, the sweeping education cess that the Budget imposes as well as the hike in service tax by two per cent could affect prices of consumer goods over a period of time.

At least that's what makers of fast moving consumer goods say. The FMCG industry, reeling under a slowdown, believes the Budget provisions are unlikely to change its fortunes this fiscal. While there appears to be no immediate change in input costs in general, which could lead to a price rise in consumer goods, many companies said they were yet to grasp the total impact of several proposals made in the Budget before themselves comprehending whether the sector, and, in turn, consumers, will be affected. Mr C. K. Ranganathan, Managing Director of the Chennai-based personal products manufacturer, CavinKare Pvt Ltd, concedes that the education cess, the hike in service tax, and more services coming into the service tax fold will have an impact on costs in the long run. As he points out, FMCG companies, like others, avail themselves of a whole host of services directly or indirectly. "These costs will definitely get loaded on to our costs," he says of the service tax that will be levied on a wide variety of services. "There will be an impact, but in the present environment, we won't be able to hike prices," he says. Agrees Henkel Spic India Ltd's Managing Director, Mr A. Satishkumar, "The cess will definitely have an impact on our costs, but for the time being we need to absorb it." As he points out, the Budget offers no immediate positive impact for consumer goods; instead there could be a small downside. Small comfort for consumers!

However, Dabur India Ltd's CEO, Mr Sunil Duggal, said that the all-encompassing educational cess would be easily absorbed by most companies and may not result in any major price hike in consumer goods.

Gujarat Cooperative Milk Marketing Federation's Managing Director Mr B. M. Vyas and Marico's Chairman and Managing Director Mr Harsh Mariwala concurred, saying even the service tax hike proposed by the Finance Minister need not lead to any major price hike worries since these changes were "marginal." However, Mariwala did add that the FMCG industry may not perk up immediately due to the budget proposals.

PepsiCo's Executive Director (Exports), Mr Abhiram Seth, said there would be no impact on the soft drinks industry; its demand for removal of eight per cent Special Excise Duty has not been met. So, status quo on soft drink prices.

However, while FMCG companies were gloomy about a lack of positive thrust in the Budget for the industry, they did welcome the whole gamut of announcements made to boost agriculture, saying increased spending by rural consumers may just be the panacea that will lead to growth in this industry. But, Arvind Singhal, Chairman, KSA Technopak, says rural spending depends on several factors, budget sops being only one of them.

As Rasna's Chairman and Managing Director, Mr Piruz Khambatta, told Business Line: "This Budget only talks at the macro level. The FMCG industry will not see much change because our biggest problem - multiplicity of taxes including excise, octroi and sales tax - continues. This has not been addressed."

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