Finally it is out. The
budget that is! And the good news is that its a sensible one. There are happy faces
all around and the best part is that, for once, there is an overwhelming majority of
people in the country who endorse the finance ministers budget.
Manmohan Singhs budget of 1991 was the path
breaking one which started the economic reforms rolling and successive budgets have
happily enough not reversed the trend.
One industry that is set to forge ahead, thanks to the
impetus given to it by the current budget, is the food processing industry. The budget has
provided that the food-processing sector including fruits drinks/preparations, pickle,
ketchup and the like would be completely exempted from excise duty. This is being done to
encourage the industry and reduce the wastage of fruits and vegetables in the country.
The major FMCG players involved in the production of
these products will undoubtedly heave a sigh of relief. These companies include FMCG giant
HLL, manufacturer of Kissan pickle, jam, ketchup and fruit punch, Nestle (Maggie ketchup
and pickle), Dabur (Real fruit juice), Pepsi (Tropicana fruit juice), Heinz (tomato
ketchup) and Marico (Sil jam).
Apart from this, the domestic tea and coffee industry
is also likely to benefit significantly from the budget, since the finance minister has
announced doubling of the customs duty on imported tea and coffee to 70 per cent from 35
percent. Also development allowance for tea plantations from the current 20 per cent to 40
per cent will give a major fillip to the sector. The sector has been facing stiff
competition from cheaper imports, and demand has remained sluggish.
Tata Tea, Hindustan Lever and Nestle will be the
biggest beneficiaries as result of this.
Most FMCG companies declined to talk on the budget for
now. However, according to analysts: "HLL will benefit the most. Dabur will be the
other major gainer as will Nestle since it has the highest percentage of sales in the food
Viewing the Budget positively, analysts said: "The
Budget has been a sensible one. It will be welcomed by all in the FMCG industry. Another
analyst commented that besides large FMCG companies the budget would also be a boon for
small-scale units in the food processing industry.
According to a market consultant, "The zero excise
duty is not a novel thing but had been done away with by previous governments. This
eventually burdened consumers with steep prices of the products. At least for a few years
now, it should keep the excise duty on this particular sector as it will help this
industry to grow.
An overview of the
food processing industry
Though India is the world''s second largest producer of
fruits and vegetables, hardly five percent of the produce is processed. India is the land
of spices producing all varieties worth over Rs. 3,500 crore ($900 million) amounting to
25-30 percent of the world production, which is processed for value-addition and export.
It grows 22 million tonnes of oilseeds covering most of the varieties. Other important
plantation products include tea, coffee, cocoa and cashew.
According to estimates, 30 per cent of the annual
produce of vegetables and fruits of India is wasted due to lack of preservation
facilities. This is equal to the annual produce of fruits and vegetables of the whole of
UK! This fact alone indicates the vast scope that exists in food processing technology in
terms of cold chains and food preservation industry.
The Indian food industrys sales turnover stood at
Rs 140,000 crore in the year 2000.
It is estimated that this industry requires about Rs
29,000 crore in investment over the next five years to create necessary infrastructure,
expand production facilities and state-of-the-art- technology to match international
quality and standards.
According to official statistics, India exported
processed fruits and vegetables worth Rs 6000 million in 1999-2000. The horticulture
production is around 102 million tonnes. Foreign investment since 1991, when economic
liberalisation started, stood at Rs 8,800 crore. Products that have seen a growing demand
especially in the Middle East countries include pickles, chutneys, fruit pulps, canned
fruits and vegetables, concentrated pulps and juices, dehydrated vegetables and frozen
fruits and vegetables.
Among plantations in India, tea is a major foreign
exchange earner. India is the largest producer and exporter of black tea. In coffee India
is the second largest producer of coffee in the world after Brazil. With the announced
increase in excise duty to 70 percent from 35 percent, the greatest worry of the Indian
tea and coffee industry has been removed, that of the removal of quantitative restrictions
from 1 Aril 2001. In the face of these India tea and coffee would have faced stiff
competition within the country as well as from countries like Sri Lanka in tea and from
Brazil in coffee.
The biggest bottleneck in expanding the food processing
sector, in terms of both investment and exports, is lack of adequate infrastructure.
Without a strong and dependable cold chain vital sector
like food processing industry, which is based mostly on perishable products cannot survive
and grow. Even at current level of production, farm produce valued at Rs 70,000 million is
wasted every year because there are not enough storage, transportation, cold chain
facilities and other infrastructure supports. Cold chain facilities are miserably
inadequate to meet the increasing production of various perishable products like milk,
fruits, vegetables, poultry, fisheries etc.
Agriculture and agro products remain the most important
sector of the Indian economy. They contribute nearly one third of the GDP and accounts for
64 percent of the workforce.
Reactions on the
The prime minister, Mr Atal Bihari Vajpayee, has said
that the budget is `forward looking'' and said the range of measures taken would help
alleviate the suffering of farmers, boost industrial growth, stimulate investment and
``It is a comprehensive Budget taking into account the
prevailing economic situation in the country. It will accelerate overall growth and
development, allaying apprehensions in people''s mind,'''' Mr Vajpayee told reporters here
shortly after presentation of the budget in the Lok Sabha.
The stockmarket, reflecting the mood of industry, seems
to be ecstatic with the budget. It witnessed a lot of volatility during the day. Marketmen
said infotech stocks were the most sought after, followed by FMCG and media. Selling was
witnessed in PSU and power stocks.
The Sensex closed today at 4,247, rallying by a massive 178 points (4.36 per cent) from
its overnight close of 4,069. The Nifty rose 4.69 per cent to close at 1356.3. This rise,
according to market sources, was the highest post-budget rally in the last three years.
The Sensex had, in fact, risen higher. The Sensex had dipped from its intra-day high of
4,265 during intra-day trade due to selling pressure. The market was particularly happy
with the government decision to reduce dividend tax. The reduction in dividend tax from 20
per cent to 10 per cent has improved the overall sentiment. Concessions for software
services also made the markets happy.
Among FMCG stocks Tata Tea rose by 5.85 percent and Nestle by 5.81 percent