Feb '09 Stimulus - FMCG Sector indifferent

The Government has come up with a third and last stimulus on 24th Feb '09 – set of tax measures that seek to alleviate cost pressures for India and give a phillip to demand for goods and services.

Measures Announced
1> Extension of the 4 per cent Cenvat rate cut (announced in December 2008) beyond March 31 2009
2> 2 per cent across-the-board reduction in service tax
3> Further 2 per cent cut in excise duty for products that are at the 10 per cent slab
4> Reduction of excise duty levied on bulk cement

With most large FMCG categories (soaps, detergents, personal products, hair care products) currently at the 10 per cent Cenvat slab, makers of FMCGs may reap selective benefits from the extension of lower Cenvat rates and a further 2 per cent cut in the Cenvat rate. The benefits, however, may not be uniform across players. Players such as Dabur, Marico, Britannia and Emami presently suffer very low excise duty incidence having located their manufacturing facilities in tax-free zones. They may see limited savings from these concessions. Players such as Hindustan Unilever, GlaxoSmithkline Consumer, Henkel and Colgate (excise amounting to 5-8 per cent of sales) may see more sizeable excise savings. Its looks unlikely that many of the FMCG companies will increase the prices of their products.