Even as the finance minister P Chidambaram announced an across-the-board reduction of Cenvat from 16% to 14%, both pharmaceutical companies as well as consumer durable manufacturers are not willing to pass on the benefit to the customers.
This is because the move would have a marginal impact on the prices of non-scheduled drugs that account for about 50% of the total Rs 55,000-crore domestic drug market. The pharmaceutical companies generally decide the prices of non-scheduled drugs in such a way that their profitability on the produce is maintained, president retailers and distributors chemists association Sandeep Nangia said.
The announcement may impact companies? decision to revise the prices of drugs in the non-scheduled category. Even if companies decide to pass on a portion of the benefit to the consumer it would not create a very big impact, as Cenvat is down by 2% only, Nangia said.
For consumer durable manufacturers, decrease in Cenvat by 2% has come along with a hike in abatement by 2%. This has marginalised the impact and hence there is no scope for passing on the price benefit to customers.
?Input costs have been rising over the last several months and as major products are sourced from tax-free manufacturing locations, there is a very marginal change and hence no change in prices,? says V Ramachandran, director (sales & marketing), LG electronics.
According to an industry expert, ?Reduction in Cenvat and a simultaneous increase in abatement have led to marginal change of 1.3% to 1.5%. This would translate into a difference of Rs 100 on a product costing Rs 10,000. This is indeed a miniscule benefit to be passed on the customers.?
?Budget 2008-09 has not come up with any major benefit for the consumer durable industry which is reeling under the burden of high interest rate as well as rising input costs. As such, it would not be possible to pass on the marginal duty cut to the customers in the form of lower prices,? says R Zutshi, deputy managing director, Samsung India.
When contacted if the drug companies would pass on the entire benefit to the consumer, secretary general Indian Pharmaceutical Alliance D G Shah said: ?as most of the multinational companies operating in India import the finished dose drugs so what percentage of benefit would be passed on to the consumer is yet to be seen.? The reduction in Cenvat on all pharmacy products would bring in parity between regions entitled to exemptions such as Himachal Pradesh, Sikkim and Uttaranchal and otherwise, managing director, Lupin Kamal Sharma said.