Sales of Indian consumer goods firms seen dampened

Sales of Indian consumer goods firms seen dampened
REUTERS

NEW Delhi, March 1: Consumer goods makers could see sales growth dampened by a hike in excise duties levied by the federal budget for the fiscal year to March 2001, industry officials and analysts said on Wednesday. Tax changes announced in the budget are likely to drive up prices of consumer goods by two to five percent.

Finance Minister Yashwant Sinha in his budget on Tuesday sought to streamline excise duties, but raised the levy on several consumer goods.

"There is not one single consumer goods sector which has benefited. In most cases, the same 16 percent excise duty rate applies, and in some it is 24 percent," said Arvind Singhal, managing director of KSA TechnoPack, a consultant firm specialising in consumer goods.

He said the net price impact may be a rise of two to five per cent on various items and it may dampen consumer spending which was picking up over the last one year.

"The consumer electronics and the home appliances sector,which was struggling with low penetration levels, will find it difficult to spur growth. Products which are low on customer priority and preference levels will be the worst hit," said Ajay Kapila, vice-president, LG Electronics India.

Analysts said the price ripples of the tax proposals will also be felt by other manufacturers of consumer goods, such as processed food companies and personal product makers.

Consumer items like biscuits, jams, aerated beverages,talcum powders and toothpastes will take a hit on prices because of excise proposals.

"The cost of a very large number of agriculture-based processed foods will go up as the excise duty has been increased from eight to 16 per cent," said P.M. Sinha, chairman of Pepsico Holdings India Ltd, a unit of Pepsico Inc.

Share prices of Indian consumer goods giant Hindustan Lever Ltd slipped on Wednesday morning to 2,760 Rupees, down 140 Rupees from Tuesday's close of 2,900 Rupees, but recovered later.

Analysts said the excise duty on toothpaste sold by HLL will now be 16 per cent against eight per cent earlier, and the duty on personal products had also risen by two per cent.

Excise duty on cars will also remain at about 40 per cent, although the automobile industry had sought a reduction in the duty level to 30 percent to spur demand.

Industry officials said the budgetary proposals offered several growth incentives for sectors like telecommunications and information technology, but offered no support to the larger manufacturing sector which includes consumer goods.