Budget 2008-2009 for FMCG Sector

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Budget 2008-2009 for FMCG Sector

Budget 2008-2009, presented by the Finance Minister, Mr. P. Chidambaram on Parliament on 29th February, 2008 had some significant implications for the FMCG (Fast Moving Consumer Goods) sector. Mr. P. Chidambaram declared that a special fund of ` 40 crore would be provided for tea plantation purposes and a sum of ` 18 crore will be provided to serve the purpose of coffee plantation. The tea companies in India will be entitled to Crop Insurance Scheme. The tea and coffee mixes will have no excise duties as per the declarations in Budget 2008-09.

The cost of breakfast food items such as corn flakes, sharbat, coffee and tea pre-mixes and packaged tender coconut are expected to decline. The excise duties has either been exempted or reduced massively on a number of processed food items in Budget 2008-09. Packaged tender coconut water, paws, puffed rice, milk containing edible nuts and tea and coffee pre-mixes have been completely exempted from excise duties. The excise duty has been halved to 8% on muesli, corn flakes and sharbat.

The Central Sales Tax rate has been reduced from 3% to 2% which is effective from 1st April 2008 on the retail sector in India. However, the excise duties for cigars, cheroots and cigarillos have been increased from 30% to 60% in Budget 2008-2009.

Other benefits promised to the FMCG sector in India include the following:

  • Reduction of CENVAT from 16% to 14%
  • Reduction in CST from 3% to 2%
  • Reduction of excise duties from 16% to 14% in inks which includes a drop-off in marker pens, highlights, and so on

Impact of Budget 2008-2009 on FMCG Companies in India-

  • Some leading brands are produced by ITC Limited in the non-filter segment namely Scissors, Hero, Bristol, and Capstan and the increase in excise duty on the same would reduce its sales volume.
  • The excise duty on filtered cigarettes has also been increased which might affect sales.
  • The reduction in excise duties on tea, coffee and breakfast cereals as well as the funds provided for crop plantation would boost up companies like Tata Tea, HUL, Nestle, McLeod Rusell.

The income tax slab has been revised in Budget 2009-09. The threshold limit for all income tax assesses has been raised by ` 40,000 for men to ` 1.5 lakh, by ` 35,000 for women to ` 1.8 lakh and by ` 30,000 for senior citizens to ` 2.25 lakh. This has increased the disposable income of people in India which in turn will increase the consumption of FMCG goods. Most of the income groups have ben given tax relaxations, as a result of which, people will freely spend on various consumer goods. As a whole, the budget fixed for the financial year 2008-09 is expected to be beneficial for the FMCG sector in India.

Last Updated on 3/16/2011