Advertisement

Muqbil Ahmar

Muqbil Ahmar writes on culture and poetry. He is a writer and theater activist, who wants to bring about harmony and amicability in the present day society. Music, poetry and good food are his passions.

More From The Author >>

How Bad are Tax-exemptions to Patanjali for Other FMCG Companies?

Ramdev's Yogpeeth, unlike a regular public charitable trust, is the portal to the yoga guru's consumer goods company which is worth several thousand crore. If one company gets tax benefits, it skews the level playing field for the others.

?

The Income Tax Appellate Tribunal (ITAT) has given tax-exempt status to Patanjali Yogpeeth of Baba Ramdev. “The finding of I-T authorities that propagation of yoga by Patanjali Yogpeeth does not qualify as medical relief or imparting of education is not justified,” the ITAT said.
Although the tax benefit is for the Yogpeeth, it is intricately linked to the FMCG business. So, it doesn't matter whether it is the Yogpeeth or the Ayurved, since the same persons hold stakes in both the enterprises. There is cross-holding. In such a scenario, one company can always cross-subsidize the other and channelize resources from one to the other. This is not to say that it will do it but the options are open to exercise.

Moreover, Patanjali Yogpeeth, incorporated in 2009 in Haridwar, is a mega institution that employs more than 350 “research scholars”, and thousands of staff overseeing the retail operations of Patanjali Ayurved Ltd, the major new entrant in the fast-moving consumer goods sector. Additionally, Patanjali's Baba Ramdev uses his "yogic" credentials to sell everything from noodles to skinny jeans. His Yogpeeth is the peg on which his FMCG Empire hangs and his brand value rests.

In its cover story on Baba Ramdev the past year, India Today brought out in detail how Patanjali Yogpeeth is at the heart of the yoga guru and business baron’s FMCG dominion, which is witnessing over 100% annual growth and is eyeing at least one-third of India’s FMCG sector by 2020, amounting to almost Rs one lakh crore.

Ramdev's Yogpeeth, unlike a regular public charitable trust, is the portal to the yoga guru's consumer goods company which is worth several thousand crore. If one company gets tax benefits, it skews the level playing field for the others. Moreover, demonetisation has already impacted major FMCG players including sector leaders such as Hindustan Unilever Ltd (HUL) and Nestle — two of the biggest names in the industry. The effect was most marked in the December quarter.

According to Business Standard, FMCG sales growth declined to 5.3% in December quarter. Sales tanked, particularly in urban areas. FMCG major Nestle admits to taking a hit of Rs 100 crore due to demonetisation and that the sector will need at least six months to overcome the impacts. Hindustan Unilever Ltd also experienced a decline of 4% in volumes.

On the contrary, Patanjali has seen a two-fold growth in revenue at Rs 5,000 crore in 2015–16. Patanjali’s Acharya Balkrishna has a net worth of $2.5 Billion, according to Forbes. The company has approximately 30 products in the market, ranging from digestive biscuits to milk powder to fairness cream. With its aggressive pricing, Patanjali products have made deep cuts into the profitability of others.

Patanjali products are sold at prices much lower than competition. It has made a big dent in other FMCG players’ shares—a burning topic of discussion among business analysts. This bending of market economics and initial offering of products at prices substantially lower than the rest, or almost free of cost (for example, the free data and voice-call offer on Reliance Jio SIMs until March 31, 2017) will impact other players.

This might well be the last nail in the coffin for the fast moving consumer goods (FMCG) sector that has seen profits dip to all-time low. However, they can do one thing to turn the tables: start a yoga institute and ward off their losses.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house


Tags assigned to this article:
Patanjali tax-exemptions ramdev FMCG Competitors how?

Around The World

Advertisement