You've got to give some to take some. The soft drinks industry and Union government seem to have done exactly that a few days before the Budget.
The soft drinks industry represented by Indian subsidiaries of US cola giants PepsiCo and Coca-Cola together with their bottlers have assured the government investment of $1bn in the processed food industry in lieu of scrapping the 8% special excise duty (SED) on aerated drinks.
Senior government officials said this should result in fresh investments flowing into the processing of fruit juice and pulp and other food products for marketing in the domestic and overseas market over the next few years.The government, on its part, has lowered the excise duty on aerated water products from 24% to 16% in the Budget '06-07. This was done by scrapping the 8% SED on aerated water.
In a related move to give a boost to the food processing industry, the government has exempted a host of food products, including packaged items, from excise to provide a fillip to the food processing industry. These include condensed milk, ice cream, preparations of meat, fish and poultry, pasta, yeast and pectins. Excise duty on ready-to-eat packaged foods and instant food mixes have been lowered from 16% to 8%.
The food processing industry will be treated as a priority sector for bank credit and Nabard will create a separate window with a corpus of Rs 1,000 crore for refinancing loans to the sectors. Top government officials said the Budget initiatives will translate into a huge jump in investments in the food-processing sector. The government was collecting around Rs 300-400 crore as excise from aerated drinks. The scrapping of the SED is expected to improve the bottomline of the industry which has been incurring losses over the last two years.
Soft drink industry insiders say that the withdrawal of SED couldn't have come at a better time. The benefit to bottlers would be Rs 8.80 per crate (pack of 12 300ml bottles) which will generate surplus cash to the independent bottler as well as the companies' bottling operations.
PepsiCo and Coca-Cola saw volume loss and decline in profit in the last two years.First the pesticide controversy took a toll on the topline and the affordability strategy ate into the bottomline.The surplus cash will help companies beef up distribution which will be key to their growth this year.