To the overseas readers of this column, I must explain beforehand that the Budget of the Republic of India is a financial statement of sorts made by the government every year to reveal where the country’s finances are at, what they are going to do about them,the economic and financial moves for the coming year, and what lies in store for the industry.
It’s a pretty big deal—just ask our Indian readers. They are probably deaf by all the noise generated in the run-up to the Budget by Indian television channels and newspapers.
This year is perhaps the first year in many that the long-term sustainability of the Indian economy has been questioned, and thus the Budget has come into the limelight more than ever before. That and the fact that the government is struggling with a growing national deficit and the country goes into elections in 2014.
In the case of food and beverage, much is expected by the industry and its representative associations. However, not much is coming their way by the signs we see.
The All India Food Processors Association (AIFPA) and Assocham have said that they expect some big moves from the finance minister come February 28 that can give a boost to the sector in the coming financial year.
One of the first and foremost demands is that the government reduce CENVAT on processed food products by almost half from 12 %.
CENVAT is value added tax levied by the central government on the industry’s manufacturing activities. One of the main reasons of this tax being introduced in India was to reduce the tax burden of the end-user, the citizen. In an election year and with a deficit that the finance minister wants to cut down sharply, the industry can kiss 6% goodbye.
In fact, our call is that he would probably hike it to about 14%. So hold on tight.
The second major demand by the food processors has been that the excise duty on food processing equipment be reduced from 12% to 6% in order to decrease costs and increase production in this year.
That is unlikely as well for mostly the same reasons. The government would loathe to give any excise sops to the industry in the coming year. The industry will try to bluff the government by saying that this would mean higher costs that would be passed on to the end-consumer and stoke the already high inflation levels in the country.
Except that the government knows that the market is still competitive and there are food and beverage companies out there still playing on price. They will call the bluff and my prediction here is that it would not reduce the excise duty, also since they do want to fill up their coffers.
All in all, don’t expect any tax and excise sops from this budget.
But there might be a small silver lining in the fact that the government might try to lessen the direct taxation burden with the coming elections and try different ways to put more cash in the hands of its citizens
These citizens might then get out to shop more—a chunk of which could go towards the grocery basket. If there is any succour for the industry with Union Budget 2012, it is in this possibility of increased consumption.
Have your say: Do you agree with Ankush? Let us know in the comments below.