EXPECTED BUDGET IMPACT: Neutral
LONG TERM OUTLOOK: Neutral
Recent reports indicate that some progress has been made on GST negotiations, and rollout in FY15 is not unlikely. As such, a roadmap/ timeline shall be watched for. GST shall provide long-term benefits to FMCG sector, on account of: 1/ greater parity with unorganized sector (hitherto non-tax paying) shall enable FMCG organized sector greater, long-term growth, 2/ supply chain benefits that accrue on account of GST.
The inclusion agenda of the Congress government in both terms has been a crucial driver of FMCG sector growth. We believe that purely by way of subsidies/ allocation to flagship schemes of the government, this budget is unlikely to surprise positively (given fiscal constraints). However, the government has been making progress on two other counts that enable greater real transfer payments, viz. Food Security Bill, and the Direct Cash Transfer scheme. The budget will likely contain timelines about large scale rollout of these, especially the cash transfer scheme. Net-net, on the inclusive agenda of the government, we expect the budget to be modestly positive.
Excise duties on cigarettes, given 21% hikes across categories last year, are likely to be lower in the year. Post hikes in last year's budget, we believe industry volumes have held firm, and the government has an opportunity to raise collections by way of higher duties. We believe that the budget is likely to raise excise duties on cigarettes in high single digits. Last year's budget had introduced (and then annulled, via financial amendment bill), ad-valorem duties on cigarettes. We believe that ad-valorem duties, if introduced, shall be a negative for cigarette manufacturers. Excise on some packaged items may also be raised.