Expectations from Budget 2001-02

We don't anticipate significant reduction or changes in excise duty (ED) structure in most categories, as there has been already significant reduction in ED rates over the last few years. We believe that most of the categories in the segment have reached what we could term 'equilibrium point', from where ED rates are not likely to deviate substantially. However, there are still some categories that are expected to see change in duty structure. Primary among them are cigarettes, tea and cosmetics/toiletries.

Despite the government being under pressure to increase revenue collection, we do not anticipate a hike in ED in most of the categories. On the contrary, some of the segments like cosmetics and toiletries could see a marginal reduction in ED rates. However, a further reduction from CENVAT rates is unlikely. Some categories like cigarettes are expected to be subjected to the customary hike in rates. The government could provide some benefits to the industry by lowering custom duties on input materials like oils, fats and chemicals to counter the import threat from cheaper foreign products.

TEA

The Tea Industry has demanded a withdrawal of Rs2/- per kg excise duty on bulk tea. The industry has also demanded an enhancement in income tax exemption from 20% to 40% for investment to be made in plantation development. The association has also demanded an increase in custom duties on imported tea to 100% to protect domestic producers.

Our Expectations

We anticipate concessions from Government with regard to excise duty either by complete withdrawal or partial reduction in rates, from the existing Rs2/- per kg. The government could consider the industry's demand for increase in tax exemption for investing in plantation development. We do not expect an increase in duty on imported teas, as it could lead to increase in the prices of tea. Major beneficiaries of reduction in duty would be Tata Tea and HLL.

CIGARETTES

The cigarette segment is largest contributor to the exchequer by way of excise duty. Last year's budget was mixed for the industry. While ED were raised on cigarettes, the government also gave some sops by extending Modvat benefits to cigarette manufacturers. The industry's demand from the current year's budget could be summarized as:

· No increase in excise duties on Cigarettes

· Continuation of Modvat benefits extended to cigarette manufacturers

· Continuation of structure of excise duty calculation based on length of the cigarettes Our Expectations We anticipate only a marginal hike in Excise duties on Cigarettes as the government is not expected to put further pressure on an industry that is already reeling under the ban on promotional activities. The government could also announce measures to prevent unrestricted import of foreign cigarettes. The government may be forced to provide some succour to domestic cigarette companies, which will face added competition from cheaper imports.

COSMETICS/ TOILETRIES

The industry has demanded an 8% reduction in the SED, which will lead to excise duty coming down to 24% from the existing levels of 32%. The industry has also demanded a reduction in ED on alcohol-based cosmetics, which attract duties in excess of 50%.

Our Expectations

The government is expected to announce some substantial concessions to the cosmetics industry in the form of reduced ED. We expect the government to reduce ED rates on alcohol-based cosmetics. The major beneficiary of this would be HLL.