Paints: Pre-Budget Sectoral Analysis

The government has given great impetus to the housing industry and I hope that the same consideration will be given in the current budget also. Housing sector revival boosts the growth of the general economy and thereby the paint industry. I request the finance minister to increase exemption of interest from taxable income on housing loans and provide further incentives to boost the sector.

The government should give incentives to companies that invest money in R&D activities by way of weighted deductions for revenue spends and accelerated depreciation rates for investment in R&D equipments. This will help the Indian industry to become globally competitive.

Dividend tax reduced to 10%

Continuation of housing incentive.

Administered interest rates lower by 50 basis points.

Peak custom duty reduced from 30% to 25%.

Spending

Of the estimated Rs 66 billion paint industry, the share of organised players has grown to 70% as compared to 30% before five years. Going forward, the organised sector is likely to increase its share in the industry.

Due to cheaper interest rates, housing demand is expected to be strong going forward. This will benefit the decorative segment of the paint industry.

The Government's focus on infrastructure projects viz. roads and ports and capacity expansion plans of the manufacturing sector are likely to benefit the industrial paint segment of the industry.

Continuous fall in excise duty in the past has benefited organised players and the impending consolidation will add to the pricing power.

Raw material cost account for around 50% of sales of the organised players. Though there are more than 300 raw materials used in manufacturing of paints, titanium dioxide, being the key raw material, accounts for around 30% of sales. Being a crude derivative, the higher crude oil prices affect the profitability adversely.

The fiscal state of the economy is a cause of concern. Slower progress of reforms (especially land reforms that are vital for the sector) is also limiting growth prospects of the economy.