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March 4, 2000

BUDGET 1999-2000


Excise-hike-hit corporates rework prices

Neena Haridas in New Delhi

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India's corporate boardrooms are still caught in the number game in the aftermath of Finance Minister Yashwant Sinha "complicated" Budget 2000.

Confusion abounds. Sinha's proposed central value added tax or CENVAT of 16 per cent and special additional duty of 4 per cent have complicated the number combinations.

There have been prompt price-hikes in some sectors or proposed hikes in others. The automobile industry has adopted a wait-and-watch policy. Rajat Nandi, exectuive director, the Society of Indian Automobile Manufacturers, says, "This time, the Budget is rather complicated. We are yet to hear from our members as to what their plan of action would be. We are still studying the Budget -- after all, we don't wish to be accused of misinterpreting the Budget."

Meanwhile, the consumer durables industry has predicted a marginal increase in prices with the excise levy going up from 30 per cent to 32 per cent.

The pharmaceutical sector, which the finance minister has identified as the new up-and-coming industry, also sees price hikes in some of its products.

While the wait-and-watch group is still deciphering the Finance Bill, there are others such as the fast moving consumer goods industry who have been quick to print new price tags.

In short, products which are most used in every household -- household products, consumer durables, automobiles and some medicines -- are likely to witness substantial to marginal price increase.

Fast moving consumer goods:

Hindustan Lever Limited has made the first move in a price revision in personal products, following the excise duty changes announced in the Budget.

The company has taken price mark-ups in toothpaste, deodrants, skin care and shampoo products, even as it has reduced the maximum retail price or MRP of toothpowder. HLL has hiked the prices of its toothpaste products by a margin of 7 per cent, following the excise duty on toothpastes increasing to 16 per cent, say dealers.

HLL's toothpaste brands Pepsodent and Close-Up earlier carried a price tag of Rs 46.50 for 200 grams and Rs 40 for 150 grams respectively. These would now increase by a margin of 7 per cent, while prices of toothpowder has been reduced by 7 per cent.

However, analysts believe that despite the price hike in toothpastes, there are unlikely to be any downtrading or downward conversions from paste to powder among dental care consumers.

Other FMCG companies such as Colgate-Palmolive, Procter & Gamble and Godrej are expected to announce price revisions soon. However, Godrej Soaps maintains that it is yet decide on the price hike, suggesting that it might even absorb the cost for a while.

Among shampoos -- a category in which HLL commands a leadership position with a 72 per cent share in the Rs 6.99 billion market -- Levers has increased the MRPs of Sunsilk, Clinic and Lux, which were sold at Rs 140 for 300ml, Rs 70 for 160 ml, and Rs 100 for 500 respectively. The price rise is in the region of 2-3 per cent.

Skin care products have seen a similar 2-3 per cent price rise. Pond's moisturising lotion, earlier priced at Rs 62 for 300 ml, and skin care brand Fair & Lovely have been hiked by 2-3 per cent from the current price level.

This segment suffered an incremental 2-3 per cent increase in excise levels, following the imposition of a special excise duty in the Budget.

Deodorant prices -- Rexona, Pond's and Axe, to name a few -- have also gone up in the same range.

Consumer durables

Airconditioner and and refrigerator prices may go up this summer, say marketmen.

The prices of imported consumer durable items such as large-screen television sets, frost-free refrigerators, airconditioners and digital video disk players are likely to go up substantially, following the government's decision to impose the special additional duty of 4 per cent on all such imports.

Does this mean one has to settle for an Indian brand? Not really, because prices of locally manufactured appliances such as refrigerators, room airconditioners and dishwashers may also see a marginal price rise as they have been brought under the MRP-based assessment for excise purposes.

Prices of other products may remain largely unaffected. Prices of locally manufactured airconditioners would also be affected by the change in the excise levy applicable to it. The excise levy has gone up from a level of 30 per cent to 32 per cent.

According to consumer electronics companies, prices of large-screen televisions could go up by as much as Rs 3,000, while that of frost- free refrigerators imported as completely built-up units, the increase could be between Rs 1,500 and Rs 5,000.

Imported direct cool refrigerators too will witness an increase in prices, even as prices of airconditioners are likely to go up by Rs 600-Rs 1,500. Fully automatic washing machines are likely to pinch the pocket by an additional Rs 750-Rs 1,000.

Says M Matsumoto, managing director, Sony India, "The reduction of peak customs duty from 35 per cent to 40 per cent may not translate to an actual visible benefit. The continuation of the surcharge will keep the total tariff high. Prima facie there is no actual benefit in the Union Budget, so this could mean that prices will need to be increased."

Certain sections of the industry feel that Sinha's CENVAT of 16 per cent is a right step towards rationalisation of the tax structure. Says KS Kim, managing director, Samsung Electronics, "This rationalisation and simplification of the tax structure is a good idea, but the special additional duty of 4 per cent is going to affect the industry adversely.

"The additional surcharge of 10 per cent on peak rate of customs duty and 4 per cent on special additional duty will make these products dearer by 5 per cent."

Ajay Kapil, managing director, LG Electronic, echoes Kim's sentiments and says that the Budget does not offer any encouraging initiative to the consumer durables industry. He too thinks that his company too will be now forced to revise the prices as the industry cannot aborb any more costs.


Make a quick buy as the car manufacturers are still undecided!

The special non-MOVATable duty that Sinha has introduced in this budget inevitably means higher price tags in the automobile market. The production cost of cars is slated to increase as a result of this additional duty, and manufacturers might be forced to pass it on to the consumers.

However, as of now, the automobile manufacturers are still doing the mix-and-match of numbers. B K Rathore, vice-president, external affairs, Ford India Limited, says, "The production cost of cars would go up slightly due to the non-MODVATable component in the Budget. We have as of now decided not to pass on the hike to consumers and maintain the existing price levels. The impact on us is marginal and in the current market situation, we do not feel the need to pass it on to the consumers. We are not altering the prices now."

Overall, the industry plans to maintain status quo for a while. Even if there is price revision, it is likely to be in April. S G Awasthi, chariman, Daewoo Motors India, says, "The costs would go up slightly due to some of these proposals, but it will be marginal. The special non-MODVATable duty will also hike the cost of acquiring parts for vehicle manufacturers.

Says V K Mehta, president, Automotive Component Manufacturers Association of India, "The industry on the the whole will be adversely hit by the new excise structure. The total excise duty on multi-utility vehicles stands increased from 30 per cent to 32 per cent. The non-MODVATable componed for the excise duty also now stands increased for all categories of vehicles, which may adversely impact on the prices and is likely to indirectly hit the auto component industry as well."

However, for those planning to buy a tractor, well now is the time. Come April, the manufacturers will announce price hikes. Eicher group vice-chairman S Shandilya says the prices of the company's small tractors are to be increased from April 1, 2000.


Manufacturers of a range of popular ayurvedic products and generic drugs may be forced to hike prices, following the doubling of excise duty on this segment from 8 to 16 per cent (under the new CENVAT) in this Budget.

In other words, the notification would affect unbranded versions of popular drugs like Crocin (paracetamol) and Novalgin (analgin) among others.

Both ayurvedic drugs and generic medicines had been enjoying a concessional excise duty of 8 per cent, which has now been brought at par with other branded medicines. Most of these medicines are sold to hospitals, dispensed by doctors or sold in the interiors of the country.

Dr K M Parikh, president, Zandu Pharmaceutical Works, says the manufactueres of ayurvedic products would be forced to pass on the hike, proportionately, if their request to the government on this front is not considered.

"We have made a representation to the government on this. How can we absorb this hike in excise duty?" he asks. Popular products under the Zandu umbrella include its balm, Chyavanprash, Zefs cough syrup. Competitor Dabur has its own basket of similar and even larger over the counter brands.

However, Dabur has not yet divulged its plans on the pricing front.

Pharma experts find it unreasonable on the the government's front to exempt items like cutlery and knives, electric bulbs of specified MRP, tooth powder, etc, from the new CENVAT rate of 16 per cent.

"Goverment must realise that 80 per cent of the ayurvedic products and generic drugs find their way into the villages and hospitals. The weaker sections of society will have to bear the brunt of this policy," an industry source says.

On the modern medicine front, manufacturers of life-saving formulations of doxorubicin Hcl (an anti-cancer drug), cyclosporine and azathioprine (used in immuno-suppressants to prevent transplant rejections) may be forced to consider price hikes, given the revised basic customs duty on these products.

Sinha has sought to increase the duty on bulk drugs as also formulations of doxorubicin Hcl, cyclosporine and azathioprine from zero per cent to 15 per cent. Besides, the countervailing duty exemption has also been abolished on these products. All the three products are, however, not covered under the Drug Price Control Order.

Industry analysts say that almost all manufacturers of cyclosporine-based formulations (including Panacea Biotech and Cipla) are importing the bulk, while multinational Novartis imports the entire formulation at times.

The key players in the doxorubicin formulations market are German Remedies, Dabur, Sun Pharmaceuticals and Biological Evans, though analysts say these formulations go into the institutional sales segment.

In the case of azathropine, the key players include RPG Life Sciences and Burroughs Wellcome with brands like Azoran and Imuran respectively. RPG Life Sciences, however, is believed to be manufacturing azathropine locally.

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