FMCG likely to see all-inclusive, progressive Budget

 Analysts expect tax policy for cigarettes to be benign, with an anticipation of an increase in excise duty on cigarettes by 10 percent across slabs and also the likely introduction of 59-mm segment in the current slab structure.  Even as the fast moving consumer goods (FMCG) sector comes to terms with a steep fall in demand due to demonetisation, major firms are turning to Budget announcements to bring back consumer confidence. Companies such as Marico   , Emami   and Godrej expect a growth-oriented, all-inclusive, and a progressive Budget, according to reports by broking firms. Analysts expect tax policy for cigarettes to be benign, with an anticipation of an increase in excise duty on cigarettes by 10 percent across slabs and also the likely introduction of 59-mm segment in the current slab structure.

 Furthermore, Morgan Stanley’s Indira Badrinarayan also expects no changes in the cigarette taxes in the Budget as goods and services tax (GST) does not look imminent in the current fiscal. Nillai Shah of Morgan Stanley expects the Budget to provide signposts from the government on measures to curb consumption of smokeless tobacco and bidis. Angel Broking felt that FMCG sector had not seen any significant revenue growth since the last two years due to the slowdown in rural demand. However, better monsoon and increase in consumer spending due to Seventh Pay Commission had boosted its prospects during financial year 2016. However, that was punctured with the government’s demonetisation push as the industry went through a slowdown due to the liquidity crunch. But the brokerage is upbeat on the sector ahead

“Going forward, we believe that the FMCG sector will benefit from the easing liquidity and possible tax benefits,” said Angel Broking. IDFC   expects home improvement products to fall in 28 percent tax category, which could be negative compared to the earlier scenario of a single 18 percent goods and services tax (GST) rate. Additionally, the brokerage report foresees a fat tax on sugary beverages and junk food as well. The sector, this Budget, will closely look at rural development initiatives with an increase in allocation to Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), Direct Benefit Transfer (DBT) and irrigation schemes. One of the most radical moves by the Modi government was to scrap high-value currency notes of Rs 500 and Rs 1,000.  The rationale behind the government’s move was to crack down on black money and boost digital usage. Demand during the period went down drastically as people were seen holding back to even buy basic necessities. Market researcher Nielsen saw a dip of 16 percent and 18.5 percent in demand, respectively, for soaps and toothpaste in the urban market. Meanwhile, sales of the industry went down by 1-1.5 percent or Rs 3,840 crore in November, the researcher added.

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