Mumbai: The focus on higher spending on rural initiatives for income generation in the Budget has bought cheer to fast-moving consumer goods makers, who also stand to gain from the proposed higher personal tax slabs.
Finance minister Pranab Mukherjee on Friday stepped up the allocation under the National Rural Employment Guarantee Act (NREGA) to Rs40,100 crore in the Budget.
The finance minister also raised the personal income tax slabs, leaving higher disposable incomes with prospective consumers, which would benefit FMCG firms.
“The overall reaction is positive. I think the best part of the Budget is that the income tax slabs have been raised, that will create a lot of disposable income in the hands of all socio-economic classes,” said Adi Godrej, chairman, Godrej Consumer Products Ltd.
“The increased allocation under NREGA is also positive as it leads to better rural income and rural remuneration structure which leads to growth.”
The rural economy contributes to 40-50% of demand for most companies in the sector.
Industry players also heaved a sigh of relief as the partial excise duty hike from 8% to 10% announced by the finance minister was in line with expectations.
“The excise rollback for the FMCG sector was expected and there were some mild surprises such as the service tax rate not being hiked,” said Milind Sarwate, head of Finance, HR and Strategy, Marico Ltd.
FMCG companies had benefitted from the government’s stimulus measures in the 2009 Budget, which cut the excise duty from 12% to 8%, a move that aided revenue growth.
MAT Hike Diasppoints
However, the hike in Minimum Alternate Tax (MAT) to 18% from 15%, was a dampener.
“The move will especially hit MAT-paying companies such as Dabur India and Godrej Consumer Products Ltd,” said an analyst with a Mumbai-based brokerage.
MAT is a tax that has to be paid by companies that enjoy tax benefits or exemptions under various schemes.
“To raise MAT to such a high level negates the benefits the government has given to industrial units for locations and other benefits. It’s a non-desirable trend as every year the MAT rate goes up,” said Adi Godrej.
The government also raised the excise duty on cigarettes, sending shares of ITC Ltd down by more than 7%.
Shares of Godrej Consumer ended at Rs246.35, up 3.01%, Marico ended up 3.36% at Rs103.1, Britannia Industries Ltd ended 2.77% up at Rs1,671.3 and Dabur closed 0.27% down at Rs168.7.