Hike in MAT will counter industry growth: Adi Godrej
Our Corporate Bureau
01 March 2006
In exclusive arrangement with CNBC
Chairman and MD at Godrej Consumer Products, Adi Godrej believes that the Budget was a good growth oriented one with its main thrust on rural India and education. However, he feels that an increase in MAT was a negative part of the Budget, as increasing taxes does not bring in more revenue and will counter industry growth.
He further says that he does not buy the logic that FBT should be removed, but FBT should be applied to sales promotion, he says.
What is your broad canvas take on the Budget? Did it leave you disappointed or are you okay with it?
I think the Budget was good. It is growth oriented. I think the expenditure on rural area and expenditure on education should create for good demand in rural India, especially for FMCG and other consumer products.
Generally, the announcement for the Goods and Services Tax, by April 1, 2010, is an excellent announcement. I hope it will be implemented on time because that could really take the growth in the Indian economy to over 10 per cent per year.
In industry, do you think anything specific that was positive and might even impact margins for Godrej now?
Yes, many positives. The removal of the excise duty on many of the processed food items will be very good for us. In Godrej ConsuMAT, mer Products, we will be considerably benefited by the fact that the aberration in the higher import duty for industrial vegetable oils used in soap manufacture, than the import duty on soap, has been corrected.
So from 20 per cent, the import duty on industrial vegetable oil, which is the main raw material for soap manufacturing, has come down to 12.5 per cent.
I think the correction is in the aberration in the vanaspati duty matter, where vanaspati could be imported at 30 per cent import duty. Whereas the raw material for vanaspati was charged at 80 per cent and has now been corrected, because the vanaspati import duty has been raised to 80 per cent. So I think in FMCG sector there are many positives in this Budget.
On FBT, you have made that point before the Budget and what you wanted. Did you buy that horizontal-vertical logic of the finance minister or has the tweaking left you disappointed?
No, I don't buy that logic. I think the FBT would be best done away with, but the corrections he has brought in do address some of the issues. The main correction he should have brought in which has not been done is in making FBT applicable to sales promotion. I think sales promotion should be removed from the list of applicability for Fringe Benefit Tax because by no stretch of imagination, can sales promotion be considered as a Fringe Benefit.
But he did it on celebrity endorsements. Do we see Sachin endorsing a Godrej soap next?
We do use celebrities from time to time. The other thing in my mind is that the only negative part of the Budget is the increase in the Minimum Alternate Tax (MAT). Increasing rates of tax does not get in more revenue, so I feel that increase in rates of tax is not positive. It may counter industrial activity growth and tax collection.