The Union Budget 2008 presented by Finance Minister P. Chidambaram is a fairly bland exercise that is obviously aimed at not rocking the boat too much in a year that is going to see elections in many states. In fact, it could even be termed relatively “populist”. It does, however, have some features that will boost the packaging sector.
The average overall growth rate for this year has been projected at 8.8 per cent (10.7 per cent for services, 9.4 per cent for manufacturing and 2.6 per cent for agriculture). As much as 55 per cent of GDP will come from services. Revenue deficit is projected at 1.4 per cent and fiscal deficit has been pegged at 3.1 per cent as against 3.2 per cent estimated last year.
Overall, excise duties have been trimmed by 2 per cent from 16 per cent to 14 per cent ad valorem and Central Sales Tax is proposed to be reduced from 3 per cent to 2 per cent. This should help bring down costs of manufactured products slightly. Duty cuts have been announced for various products like breakfast cereals, refrigeration equipment, small cars, 2 and 3 wheelers, coconut drinks and wireless data cards. Higher taxes have been levied on non-filter cigarettes.
Three sectors that have been really benefited are health-care, agriculture and education. The health allocation has been increased by 15 per cent and excise duty on pharmaceuticals has been halved from 16 per cent to 8 per cent ad valorem. On the one hand, the additional investments in health should generate a lot of extra business for the health-care industry and, on the other, the duty reduction in pharmaceuticals should substantially bring down costs of drugs, medicines, medical devices and other medical disposables for the common man. This should boost growth in a sector that is already growing at a whacking rate. This should further generate additional demand for pharmaceutical packaging.
To boost education, duties on paper have been brought down from 12 per cent to 8 per cent and this should normally have been a big benefit for the packaging and printing industry had the savings on duty been passed on to customers by the paper manufacturers. However, according to our information, the paper manufacturers have mopped up this amount by announcing increases in ex-factory prices such that gross prices have remained the same as before the budget announcement. In effect, manufacturers operating under Modvat have actually had net price increases. The reasons cited for the increase by paper manufacturers are substantial increases in costs of energy and inputs of fibres and pulp.
The sops provided for the agriculture sector are mainly by way of waiver of loans to marginal and small farmers, additional credit and schemes to revive agricultural and foodgrain output, which has been reported at 219.32 million metric tonnes.