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New Delhi: The excise duty cut on petrol and diesel will help packaged consumer goods firms lower their transportation and freight costs which in turn will cool down the high costs of operations faced by businesses currently.

On Saturday, the government announced a reduction in excise duty on petrol by 8 per litre and on diesel by 6 per litre. This will reduce the price of petrol by 9.5 per litre and of diesel by 7 per litre. This was done as part of the government's efforts to stem inflation.

A spokesperson for FMCG company Dabur India said while it is too early to comment on the impact on consumer demand, the move would certainly help lower transportation and freight costs to some extent.

Others said the move is positive for the packaged consumer goods industry.

"This will bring down the logistics cost of not only finished products but also inputs which are shipped to various locations after central purchase. Inputs like wheat, sugar and other are going from north and west to south and east; this will also see reduction in cost in those local markets," said Mayank Shah, senior product category manager at biscuit maker, Parle Products.

High prices of raw materials have been biting into company margins as packaged consumer goods firms face multi-year high input cost inflation. Meanwhile, companies have been passing on price increases. Higher prices are pinching household budgets with consumers cutting back on consumption.

For instance, the price of sugar rose 7% in the March quarter from a year earlier. Besides, packaging costs have surged as laminates rose 20% in the March quarter from a year earlier, while corrugated boxes increased 21%. Edible oil prices have also risen sharply.

Meanwhile, a trader's body said a cut in excise duty in the prices of petrol and diesel could reduce prices of items of daily goods by at least 10%.

In a note on Sunday, Confederation of all India Traders (CAIT) said exemption in fuel prices will help reduce prices of everyday items.

“Similarly, prices of other commodities should also come down because the cost of transportation of raw materials will also be cheaper now which may cause lowering of prices," the association that represents scores of small and large traders said.

“It is very important now to ensure that the big manufacturers should also bring down the prices of their products. It has been seen in the past that often the people of the country do not get the benefit of this type of reductions," said Praveen Khandelwal, National Secretary General, CAIT.

CAIT said that 80% of the movement of goods in the country is through road transport, which is driven by petrol and diesel.

“Raw material is transported via road to make any item and in this process road transport is used at least thrice from factory to consumer and there is huge consumption of petrol and diesel at each stage," he said.

The government has reduced the excise duty on petrol by about 10% and on diesel by about 8%. "According to a rough estimate, this reduction should result in a reduction of about 10% in the prices of all goods, which should be directly benefited by the consumers," he said.

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