Sinha’s budget to fuel inflation: CARE

Saying that the budget will have an negative impact on the automobile industry, CARE said an increase in import duty on CR coils by 5 per cent and the across the board levy of non-modvatable custom duty at 8 per cent will have an adverse impact on car manufacturers with lower indigenisation levels. While commercial vehicles have been spared, the excise duty on multi-utility vehicles (8-13 seater) has been increased from 25 per cent to 30 per cent. This will increase the cost of these vehicles by Rs 12,000 – Rs 15,000. The increase in the price of petrol isexpected to result in slackening of demand of petrol vehicles, it said. Tractors (below 1800 cc) have been brought under the purview of excise and will attract an excise duty of 8 per cent.

CARE said the tyre industry will have an negative impact as the special import duty of 8 per cent will increase the cost of raw materials and affect margins adversely. The increased petrol cost may dampen demand for and the use of petrol vehicles, in turn resulting in the decline of tyre sales.

It said computer hardware will have an neutral impact as the imposition of 8 per cent duty on imports and restriction of Modvat credit to 95 per cent of the duty paid on all the inputs would more or less neutralise the effect of the reduction of duties on key components.

CARE said the pharmaceutical industry will have a negative impact as the across the board import duty hike will benefit the bulk drug producers particularly those facing competition from imports. The margins of formulators of price controlled drugs will beadversely affected, until the prices are suitably revised.

With the shift in pricing of petroleum products from the administered pricing mechanism to market determined pricing mechanism, the levy of special additional duty of customs of 8 per cent on imports (in lieu of the local taxes on domestic refiners) coupled with the 5 per cent duty reduction in crude may result in improved margins for domestic refiners, CARE said.

The additional levy of 8 per cent duty on imported product would also provide protection to domestic players in the wake of the gradual decanalisation of petroleum products. Refineries commissioned after October 1998 will benefit from the five year tax holiday proposed in the Budget.On the cement industry, it said the thrust on housing and infrastructure sectors will help improve cement offtake. Marginal gains are likely to accrue on account of the removal of 8 per cent excise on ready-mix concrete.

The 8 per cent across the board levy on imports would help in countering the threatof imports from south east Asia. However, margins of coal-based cement producers, who use imported coal, are likely to be affected.

It said the paint industry will have an negative impact as raw materials account for nearly 70 per cent of the total manufacturing cost of paints and nearly 40 per cent of raw materials are imported. Additional non-modvatable levy of 8 per cent custom duty will increase the input costs of the paint industry by 2-3 per cent. This will affect the profit margins.

The prices of packaged tea are expected to increase as a result of the 8 per cent levy of excise duty. It may be difficult to pass on the entire burden to the consumer and margins may be adversely affected, CARE said.

On the textiles industry, CARE said the impact would be negative as special customs duty of eight per cent on imported fibre and yarn would result in higher realisations for domestic producers. However, higher realisations would be offset by increase in raw material costs. Fabric manufacturers are likelyto be adversely affected as it would be difficult to pass on the raw material cost increases to customers.