New Delhi: The markets or the middle class may not have cheered finance minister Arun Jaitley’s budget, but his proposals have brought good news for Patanjali Ayurved Ltd.
Yoga-guru-turned-businessman Baba Ramdev’s Patanjali is set to benefit from the Budget 2018-19 in more ways than one both in sectors where the company is already present in, or the ones that it is planning to enter.
Jaitley’s budget for Bharat, or rural India, with the thrust on ‘Make in India’ —the government’s flagship campaign hoping to boost local manufacturing, comes with steep increase in customs duty on import of about 50 items—including products like fruit and vegetable juices, edible oil, beauty and personal care products. Besides, importing these products will attract a Social Welfare Surcharge at 10%, instead of a 3% education cess, on aggregate customs duty.
Baba Ramdev’s Patanjali, which has challenged multinationals in the past couple of years in the packaged goods space, has a strong presence in juices, edible oil, and beauty and personal care products. Companies, including Patanjali, which make these products in India, will have a price advantage over the imported brands.
To be sure, out of Patanjali’s Rs9,346 crore revenue for the year ended 31 March 2017, edible oil accounted for more than Rs1,000 crore, while its beauty and personal care products accounted for more than Rs3,500 crore.
Reacting to Jaitley’s budget proposals, Ramdev said that the government has done “something good to protect Swadeshi for the first time" by increasing the customs duty. In the past few years, Ramdev has publicly criticized multinational companies for “looting" India for years.
That’s not all. Ramdev has more reason to cheer. Jaitley has abolished customs duty on solar tempered glass used for making solar panels – a sector that Patanjali has recently tapped into, aiming to manufacture solar power equipment locally, according to 4 December report by Mint.
In the budget, Jaitley proposed to double customs duty on silk fabrics to 20% from 10% earlier which will end up making certain apparel costlier. Interestingly, Ramdev has, in August last year, said Patanjali will launch and retail its own apparel brand Paridhan. He hopes to generate Rs5,000 crore from apparel business in the first year, Mint reported on 3 August.
Being made in India, and primarily made of cotton fabric, Patanjali’s apparel range will have a cost advantage over other brands, especially those of foreign origin.
Besides the packaged goods business, Ramdev’s Patanjali runs education institutes, and a research centre that focuses on Ayurveda and health. In his budget, Jaitley proposed to step up investments in research and related infrastructure in premier educational institutions including health institutions, and allocated Rs1 trillion to be spent in next four years.
Above all, the budget proposals focused on boosting rural economy to spur consumption. Patanjali has a large presence in rural markets, especially in northern India. For top packaged goods companies, rural markets account for just about 30-40% of sales. But for Patanjali it is estimated at close to 50%.
Besides increasing support to existing schemes relating to rural employment and infrastructure to Rs14.34 trillion, the finance minister has allocated Rs1.87 trillion for the rural, agriculture and allied sectors, an increase of 24% from the previous year. Jaitley also announced creation of Rs2,000 crore agriculture market infrastructure fund and strengthening of electronic national agriculture market (e-NAM). The plan to develop the cluster-based model horticulture to assist groups of farmers from production to marketing besides allocating Rs10,000 crore for fisheries and animal husbandry development under Nabard are all targeted to increase farmers’ income.
“If the proposed allocations result in more disposable income in rural areas, Patanjali, with its reach and Ramdev’s loyal followers, would undoubtedly gain. But not just Patanjali, any company with strong distribution in rural markets would gain from this," said an executive at a management consulting firm, asking not to be named.
The good news not withstanding, Patanjali’s Ramdev has something to complain about. “It would have been better had people been provided relief in income tax up to Rs5 lakh," Ramdev said, adding that Jaitley has proposed a “nation-building budget" that will bring “good days for poor labourers and farmers".