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COVER STORY: BUDGET 2001 Sectoral Outlook Say Cheese How will Budget: 2001 impact across industries? BT analyses six key sectors. FOODS & BEVERAGES Eat, drink and be merry. That's the message Budget 2001 sends out to the Rs 25,000-crore foods and beverages industry. Exempting fruit- and vegetable-based products from Excise will help manufacturers of pickles, juices, jams, ketchup and soups. Companies such as Nestlé, Heinz, Dabur, and Pepsico India (it makes Tropicana and Frito Lay) stand to gain the most, while HLL, which earns only 3 per cent from this segment, will be a marginal gainer.
The gain will be either in margin or volume, depending on retail price cuts. Says D. Sundaram, Director (Finance), HLL: ''The incentive given to fruit and vegetable processing industry will spur consumption.'' The Rs 6,000-crore soft drinks industry, which has been growing between six and eight per cent per annum, will stand to gain, albeit marginally. Reason? Although the Excise duty is down to 16 per cent from 24 per cent, the abatement level has been reduced from 55 per cent to 50 per cent. Says P.M. Sinha, Chairman, PepsiCo India Holding: ''The (2 per cent) reduction (in Excise) is unlikely to reach the consumer.'' The uniform duty slab has dealt a blow to biscuit manufacturers like Britannia, whose small pack biscuits will now pay double the Excise at 16 per cent. The increase in developmental allowance to the tea industry as well as protection from imported tea and coffee have cheered industry up. It now seems the industry will be able to fight the threat it has been facing from lower-priced tea such as Sri Lanka's. -Seema Shukla PETROCHEMICALS:
There are no direct sops for the industry, but it has been spared any major cuts in Customs on polymers. Says K.G. Ramanathan, Chairman, Chemicals and Petrochemicals Manufacturers: ''Any reduction at this stage would have seriously affected domestic producers. Already, the removal of surcharge will lower effective rates.'' That apart, the government is committed to cut duty rates to 20 per cent in another three years. How will cheaper imports of DMT, PTA, MEG, and intermediates for synthetic fibres affect companies? ''While vertically integrated companies like Reliance will not be affected, others like Bombay Dyeing (which sells DMT) are bound to feel the pinch. Similarly others like IPCL and GAIL might get hit,'' says Srinath Mukherji, Country Head, Arthur D. Little. Things haven't been rosy anyway for the Rs 25,000-crore petrochemicals industry, where a slight excess supply has kept prices and growth rate soft. Says Chinmaya Bhattacharya, Marketing Director, IPCL: ''The removal of protection will definitely affect the bottomline of companies. But this is a sign of the times to come; the industry must learn to survive.'' Still, the industry expects growth to inch up from 11 per cent in the current fiscal to 15 per cent next year. While the Budget may have set a time-frame for the much-awaited Administered Price Mechanism, it doesn't say how the oil pool deficit will be bridged. This would inevitably call for hikes in the Excise duties on products like kerosene, something the administration is loathe to do. The petrochem industry had better get its act together. -Abir Pal BANKING AND FINANCE:
There were plenty of triggers to send bank stocks soaring on Budget Day and the days after. Consider, for instance, the halving of dividend tax to 10 per cent or the 0.5 per cent cut in the bank rate. According to Ajit Dayal of e-broking portal equitymaster.com, this itself should help banks bolster their bottomlines by anything between 1.5 per cent and 5.5 per cent. Then, the proposal to allow Foreign Institutional Investors (FIIs) to invest up to 49 per cent (up from 40 per cent) in a company's paid-up capital will go a long way in boosting bank stocks, like HDFC, where the FIIs have already hit the 40 per cent threshold. But what put the smiles on bank CEOs were the sops directed at the industry itself: the cut in small savings rates by 1.5 per cent, and the abolition of the Banking Service Recruitment Board. ''These reforms will go a long way in increasing the competitiveness of banks,'' says Seshadiri Sen, Research Analyst with sg Asia Securities. The rate cut in small savings, for instance, will now allow banks to lower their interest rates, and compete more effectively against similar government schemes. ''They can now reduce their deposit rates, and, thereby, improve their spreads,'' points out Dayal. The downsides? Marginal, like the reduction in the exemption limit of interest on deposits from Rs 10,000 to Rs 2,500. The move could prompt tax-shy investors to park their money in mutual funds. But the banking industry isn't complaining-not when Finance Minister Yashwant Sinha has so much in store for it. -Brian Carvalho AUTOMOTIVE:
Sinha's finally done it. Yielding to the automotive industry's long-standing demand for cuts in Excise duties, Finance Minister Yashwant Sinha has lowered the Excise on cars from 40 per cent to 32 per cent; on two-wheelers above 75cc from 24 per cent to 16 per cent. ''Everyone in the industry wants to pass on the reduction. We expect the market to expand by at least 5 per cent in the coming financial year,'' says Society of Indian Automobile Manufacturers' (SIAM) President, Venu Srinivasan. That's big news for an industry that will end this fiscal with a negative 3 per cent growth. Prices are already being slashed. Hyundai Motor has shaved Rs 18,000 off its small car, Santro, and Rs 40,000 off Accent, its sedan; market leader Maruti has announced cuts ranging from Rs 11,000 on the 800 to Rs 42,000 on Baleno. Two-wheeler prices are also down variously from Rs 2,000 to Rs 3,000. Raves Sona Steering CEO, Surinder Kapoor: ''I see a growth of 16 per cent in cars. Components should grow at more than that as aftermarket will add to the growth.'' First-year depreciation on commercial vehicles has been doubled to 50 per cent, which in turn could spur sales in the moribund segment. Happily for industry, too, the effective Customs duty on imported vehicles (cars, scooters, and multi-purpose vehicles) has been upped to more than 180 per cent. Still, two-wheeler makers feel the tariff barrier may not be high enough to deter imports from China. The brighter side? SIAM gets to keep its job as industry lobby. -Suveen K. Sinha AGRICULTURE:
Coming on the heels of the National Policy on Agriculture (November, 2000), Budget:2001 lays the foundation for reforming the country's agriculture sector. Taking more items off the Essential Commodities Act will allow farmers to sell outside their state of production, resulting in better price realisation. Also, cheaper jam and pickles could up the demand for fruits and vegetables, where margins are higher for the farmer. The 24-per cent hike in credit allocation, extension of Kisan Credit Cards Scheme, and a reduction in interest rates on loans to states for agri infrastructure will boost productivity in agriculture. Explains Ganesh Kumar, Associate Professor, Indira Gandhi Institute for Development Research: ''Higher credit availability is expected to allow farmers to buy higher-yielding seed and boost agricultural productivity.'' Diminishing the role of FCI could lead to a cleaner supply chain in the public distribution system. Yet, some experts feel Sinha could have done more. Says Ashok Gulati, Director, International Food Policy Research Institute: ''The direction is right, the intention is good, but the dose is small. We were expecting bigger things.'' For instance, the Retention Pricing Scheme for urea was expected to go this year, but Sinha has allowed that to continue for the next six years. Similarly, the Essential Commodities Act (ECA) could have been simply abolished, instead of announcing a review. That said, agriculture economists do think that the sector's rate of growth-a bare 0.7 per cent and 0.9 per cent in the previous two years-could jump to 3 per cent in 2001-02. -Ranju Sarkar SMALL SCALE INDUSTRIES:
Falling tariff barriers + Chinese price warriors = A scared small scale sector. Can't blame them, though. For years, the sector was denied economies of scale and, to make up for that, fed on sops. Now, courtesy the World Trade Organization, small industries must be thrown open to global competition. ''We are going to ask the Finance Minister to rethink the issue,'' says J.M. Pawar, President, Federation of Associations of Small Industries of India (FASII). Budget: 2001 has thrown in a lifeline or two. For example, Excise duties on some processed food items like pickles and jams have been lowered to 16 per cent. Most of the manufacturing of such items is done in small industries. But the industry feels that more has been taken away than given. The deregulation of leather goods, shoes, and toys will hit one of the most profitable segments of the sector. ''At a time when growing consumerism was opening up new avenues for the Indian toymakers, this decision is clearly a blow,'' says J.K. Paul, President of the Federation of Small and Medium Industries (FOSMI). What's also worrying the sector is the removal of Customs surcharge across the board. Much of what China makes-ball pens, locks, rubber slippers, and even umbrellas-is in direct competition to the small sector in India. The lack of tariff barriers will give them, and also the bigger manufacturers, a price edge. The coming fiscal will see a fierce battle for survival. -Debojyoti Chatterjee |
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