Demand for most packaged food products, which account for 70% of FMCG sales, either fell or remained stagnant during 2010

FILLING UP SHOPPING BASKET

FMCG Riding on Price RiseComing amidst rising input costs, many local and regional players found it difficult to compete with established players on the pricing plank. This made several consumers shift from unbranded product to branded ones as the price differential watered down.

The double-digit sales growth in the consumer product may not be purely on account of growing demand, as widely perceived; it's price increase and popularity of premium products that are driving the value growth.
Data from India's largest household research firm IMRB that tracks consumption trends in several sectors reflects that while demand in most categories remained stagnant in 2010, sales growth was mainly on account of price hikes and the launch of premium products by most companies, which bring in higher revenues to marketers.
In the current inflationary market, this trend is likely to continue even in 2011.
"Coupled with price hikes, we are also seeing grammage reduction in several product categories now, which will negatively impact volume," says IMRB Insights Director Shweta Kulkarni.
Here, sales imply revenues realised, or value, and demand reflects the volume or number of units sold.
"However, there will be a reversal trend in foods, especially branded commodities as most companies have started to drop product prices," says Kulkarni.
Demand for most packaged food products, which account for 70% of FMCG sales, either fell or remained stagnant during 2010 due to inflation in basic items such as wheat and edible oil.
In the case of personal care products, volume growth was average but sales shot up because most companies increased prices and launched top-end products.
"We see consumers shifting to higher priced products, which helped companies increase sales by value," says Godrej Consumer Products MD A Mahendran. "There were also uptrading from local and regional brands to established brands in the personal care segment, which helped increase the consumer base in 2010."
Shampoos and skin-care products grew double digit in value terms despite stagnant volume growth.
All this helped companies report good revenue growth even though volume growth was much higher in 2009.
In 2010, total sales of the top eight consumer product companies in the BSE FMCG index grew 12% over 2009 to Rs 36,085 crore. The net profit growth was 12%.
Only home care segment reported higher sales and increased consumption. Companies including Hindustan Unilever, Reckitt Benckiser and Dabur launched more than a dozen new products in the segment.
"Innovation in product development, resurgence of modern trade and a boom in modern homes have been the key drivers of growth in the home care products market," Dabur's home care category head Rohit Prakash Gupta says.
However, established categories such as washing powder had higher volume than value growth due to price discounting as multinationals Hindustan Unilever and Procter & Gamble went for a price war.

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Stock, Commodity Trades to Attract Uniform Levy

Surplus budget retains standard VAT rate at 12.5%; state sales tax revenue expected to grow 26% from last year

The Maharashtra government has decided to levy a uniform stamp duty of 0.005% on all transactions in the stock and commodity exchanges, including transactions of securities, futures, delivery and non-delivery based transactions. This was announced by the state's finance minister Ajit Pawar in the annual budget presented on Wednesday.
Maharashtra's annual budget shows asurplus of . 58 crore and has a revenue target of . 1,21,503 crore for the fiscal 2011-12. The size of the annual plan has been set at . 41,500 crore. The budget has retained the standard VAT rate at 12.5%, while state sales tax revenue is expected to increase 26% from last year.
Though the finance minister did not specify the revenue projection from the 0.005% stamp duty levied on stock and commodity transactions, he said the move will simplify collection of duty on all such transactions. At present, stamp duty is levied at different rates depending on whether turnover is delivery-based, non-delivery-based, or proprietary. Brokers are required to pay 0.01% for the first category, 0.002% for the second and 0.001% for the third.
The state government has decided to make some amendments in the Bombay Stamp Act 1958 to increase the revenue from stamp duty by 31% in the state. Transactions of transfer of longheld tenancy rights of house property (extension of lease) will now be liable for stamp duty at market value.
The budget proposed to levy a new 5% tax on sale of telecast rights of various events, including cricket matches and entertainment programmes like award shows. It also proposed to increase the rate of tax on soft drinks to 20% from 12.5% and changed excise duty formula for country liquor, Indianmade foreign liquor, and beer in order to increase revenue. The minimum rate of excise duty will be increased to . 95 per proof litre for country liquor, . 240 per proof litre for foreign liquor, . 33 per bulk litre for mild beer, and . 42 per bulk litre for fermented beer. The budget has also proposed change in the VAT structure for liquor. Instead of charging 25% VAT at each stage with deduction for set-off, now 50% VAT will be charged only once at the sale stage based on the sale price of the liquor.
Some amendments for procedures were also proposed in the MVAT Act. These include amendments of revised returns, providing for deposits instead of advance payments for voluntary registration, changes to provisions of refund application to be filed by dealers making interstate sales, etc. The budget proposed stern action against those convicted in Hawala dealings, with two years imprisonment. The budget also proposed . 1,440 crore for providing basic infrastructure facility to the urban poor and . 2,500 crore for various infrastructure schemes under the JNNURM. It has proposed . 2,749-crore expenditure for building roads in rural areas, . 5 crore for construction of a floating jetty at Gateway of India, and . 162 crore for airport upgradation.
In order to promote air traffic in various districts, tax on aviation turbine fuel has been kept at 4% in all districts of the state, except Mumbai and Pune. This scheme of concession will continue till March 31, 2012. The film industry breathed a sigh of relief as the finance minister proposed to abolish the tax on copyright of Bollywood films.
The budget proposed a subsidy of . 2,500 crore to farmers for their electricity bills. Wheat, rice, pulses, flour, turmeric, chillies, tamarind, gur, coconut, cummin seeds, wet dates, fenugreek, and papad have been exempted from tax till March 31, 2012. Domestic liquefied petroleum gas (LPG) will also be exempted from state tax. The finance minister also proposed change in recovery procedure for sugarcane purchase tax. Instead of recovering the entire tax in the crushing season, the purchase tax will now be recovered every month from the sale proceeds.

MONEY TALK: Maharashtra CM Prithviraj Chavan (left) & deputy chief minister and finance minister Ajit Pawar (extreme right) with their colleagues at Vidhan Bhavan shortly after the presentation of the budget in the House.

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