Excise duty hike of 12% on FMCG items to hit your pocket

A touch of lipstick will smear your pocket with Pranab Mukherjee having hiked excise duty on soaps, diapers , toiletries and other fastmoving consumer goods ( FMCG) to 12%. In Budget 2011, the excise duty on diapers and feminine hygiene products was halved to 5%. This year it has increased to 6%.

But there will be more money to spend on these products because I-T exemption limits have been raised. Even a small rise in the disposable income of India’s 350 million middle income consumers will bolster growth. This section contributes roughly 40-45 % to the Rs 1,20,000 crore FMCG sector.

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Yet, with companies reeling under cost pressures, the hike could further squeeze margins. However, since most FMCG firms like Hindustan Unilever, Procter & Gamble and Marico manufacture these products in excise-free zones, the level of price increase will depend on the mix of manufacturing zones.

“The increase in excise duty and service tax from 10 to 12% announced in this Budget puts more pressure on an industry already under inflationary pressures from devaluation and higher commodity prices,” said Shantanu Khosla, CEO, Procter & Gamble India.

Considering that overall economic growth is in the range of 7%, an increase in excise duties will have an impact on demand.

“Prices are certainly going to go up for the consumer. On one side, money has been put in the hands of the aam admi, while on the other hand, the expenses have gone up,” said A Mahendran, managing director, Godrej Consumer Products.