A positive budget in trying times
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Mar, 11 2013

A positive budget in trying times

The Budget has been hailed as balanced, growth-oriented and by and large, encouraging for industries, especially the SMEs.

IN the last full Budget of UPA-II before the general elections in 2014, Finance Minister (FM) P Chidambaram has attempted to rein in fiscal deficit and yet not overlook spending for fulfilling the growth objectives. Prime Minister Dr Manmohan Singh has hailed the Budget saying the FM has done a commendable job in containing the deficit while simultaneously addressing the growth imperatives. Industries by and large have given thumbs up to the Budget as the proposals are likely to augment their growth, especially that of SMEs. At a time when the Indian franchise market is expected to reach $20 billion this year, there were many expectations. Reacting to the Budget, Sandeep Kulhalli, Vice-President, Retail and Marketing, Tanishq, said: “The budget has been indifferent to the jewellery industry and has spared the consumers, as no major levies or duties have been imposed. The government's intention to bring down the import of gold is very strong and one may see some initiatives on this front, at a later date.''

Punit Agarwal, Promoter & CEO, Promart Retail, said: “The allocation of Rs 2,400 crore for textile upgradation and the continuation of TUF scheme are positive steps. The budgetary allocation of 46 per cent for the rural develo-pment is a handsome hike. Better infrastructure in the smaller cities will help us reach the tier V- VI cities as planned,” he said.

Impact on food franchise brands

With Budget 2013-14 announcing an increase in service tax of 12.36 per cent on all air-conditioned restaurants, a majority of food brands, including those operating via the franchise route are all set to increase the prices of their food products 5 to 10 per cent. As a result these restaurants may experience a downfall in footfalls. As far as the impact on franchising is concerned, the price rise may have an adverse impact on food franchise brands as all franchise brands belong to the organised category where providing basic amenities like air condition is a must. The increase in service tax may reduce people's spending on eating out in organised restaurant chains. Decreased footfall is definitely going to affect the food franchise businesses.

Impact of women bank

The proposed bank for women is going to encourage woman entrepreneurship. The bank will lend mostly to women and women-run businesses. Franchising offers a lot of business opportunities to women, especially mompreneurs. The women bank is thus believed to be a great step towards women empowerment. The bank is expected to have the best utilisation in rural and semi-urban areas where local women may feel comfortable and confident in communicating with ladies staff in a bank. Franchise brands supporting women entrepreneurship may see profits as more women are expected to opt for women entrepreneurship in the coming months.

Impact on apparel sector

Branded apparels will become cheaper as there will be zero excise duty on the items. This is bound to increase their sales and is likely to boost franchise brands in this sector. According to the Clothing Manufacturers Association of India, the garment industry is likely to post an annual growth of 12-15 per cent in the wake of positive budgetary measures.

MSME benefits to continue: The Budget makes the proposal that the micro, small and medium enterprises will continue to enjoy benefits for up to three years after they outgrow their category.

Impact on mobile phone sector: Smart phones or phones costing more than Rs 2,000 will now become dearer with the rise in excise duty from one per cent to six per cent. Though smart phones will become more expensive, it may not have a big impact on the business of franchise brands in this sector owing to the fact that mobile phones have now become a necessity and hence their sales may not dip much despite increase in their prices.

Impact on jewellery franchise brands

The jewellery franchisors may expect good times ahead, because of the Finance Minister's decision to reduce the import duty on pre-forms of precious and semi-precious stones from 10% to 2% in the Budget. This move is likely to boost the exports of precious and semi-precious stones from India. There is much relief for the industry as the government has not imposed any further import duty on gold. Also, the duty-free limit on imported jewellery has been raised to Rs 50,000 for males and Rs one lakh for females.

Capital markets: In addition to normal initial public offerings (IPOs) by SMEs on the SME exchange, the Budget has allowed SMEs, including start-ups, to list on the SME exchange without being required to make an IPO.

Foreign investment

The FM has proposed to lay down a broad principle in line with the international practice, wherein an investor having a stake of 10 per cent or less in a company will be treated as FII and an investor with a stake of more than 10 per cent will be treated as FDI.

Budget 2013-14 has emphasised the need for growth and establishing an investor-friendly economy. Investors should benefit, both directly and indirectly, by a positive business environment. By the look of things, the franchising industry should be a beneficiary if the Budget proposals are fully implemented.

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