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Consumer goods industry breathes easy as exciseduty remains unchangedThe government had slashed excise duty on consumer products from 14% to 12% to 10% over

the past three years to help the industry cope with the 2008-09 economic slowdown. But

following a recovery over the past year, companies were afraid the finance minister would rollback the cut

Bhavna Raghuvanshi & Rasul Bailay

The consumer goods industry has breathed a sigh of relief, with the finance minister leaving theexcise duty on products unchanged in Budget 2011.

Executives said the prices of consumer

products have gone up in recent months

because of rising raw material costs, andthey could have ill-afforded to pass on to

consumers another price hike on account

of a higher levy.

Finance minister Pranab Mukherjee saidon Monday he was not raising the 10%

excise duty on products such asrefrigerators, washing machines and air

conditioners as the government wanted to

see companies improve their margins,which would translate into higher levels of investment. He, however, introduced a 1% levy on

130 previously duty-free items, including ketchup, pencils, instant food and tooth powder.

Prashant Khatore, tax partner at the consulting firm Ernst and Young, said a hike in excise dutyon consumer products would have pushed up inflation. I dont think the government wanted to

open another front in terms of inflation.

The government had slashed excise duty on consumer products from 14% to 12% to 10% over

the past three years to help the industry cope with the 2008-09 economic slowdown. Butfollowing a recovery over the past year, companies were afraid the finance minister would roll

back the cut.

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The industry expected a roll-back of stimulus packages and the excise duty rate to go up by 2

percentage points, but in the absence of these changes the industry will continue to grow at the

same pace, said Y.V. Verma, chief operating officer of LG Electronics India Pvt. Ltd.

LG, he said, has raised prices of digital and electronic products, home appliances and air

conditioners by 7-8% over the past eight months.

Eric Braganza, president of Haier India Pvt. Ltd, said rising costs of raw materials such as

copper, steel and plastics have largely caused the rise in prices. Haier would raise prices again inMarch, he added.

Ravinder Zutshi, deputy managing director, Samsung India Electronics Pvt. Ltd, said the budget

could prove to be a catalyst for economic growth. I would view this budget as a growth-oriented

budget that should boost the fundamentals of the economy and boost consumption, he said.

Braganza of Haier India said he expects the consumer products industry to continue growing at

15%.

But some executives said the finance minister could have provided incentives such as a further

reduction of excise duty on products with low penetration, such as refrigerators and washing

machines, and customs exemptions on imported items such as liquid crystal display (LCD)panels to accelerate the industrys growth.

The Indian consumer durables industry is 15-20 years behind China and has a reach of 15%,

whereas 85% of population still remains untouched by these products, said Verma of LG

Electronics. This budget has not attempted any incentive for the consumer durables sector to

grow faster than its current pace.

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YV Verma, Chief operating officer, LG Electronics India

The Union Budget this year is lackluster. It will have little or no effect on the consumer

durables manufacturers.

The corporate tax reduction from 7.5% to 5% is very low and will have no real impact on

companies like ours.

The prices of home appliances room air conditioners will not change on account of Budgetprovisions.

The Indian consumer durables industry is 15-20 years behind that of China and has a reach of

15% whereas 85% of the population still remains untouched by these products. The Budget has

no incentive for the consumer durables sector to grow faster.

Adi Godrej,Chairman, Godrej group

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In general, it is a very good Budgetgrowth-oriented and balanced. One of the most important

things is the signal given for introduction of GST early.

On the consumer front, measures on affordable housing, agriculture, increase in the exemption

of income tax will help middle-class consumers.