This is likely to have an inflationary impact on toilet soaps, said analysts, even as some companies like HLL are likely to absorb the cost rise in input prices. The import duty on industrial oils is 45 per cent.

"The company will have to evaluate undertaking a price increase," said Godrej Soaps managing director Adi Godrej. The cost is expected to be partly passed down to the consumer, while the balance would be absorbed by manufacturers.

Market leader HLL is unlikely to go for a price increase given the multinational's general policy of undertaking minimal price increases annually.

Total market volume of toilet soaps is 5.2 lakh tonnes valued at Rs 2,900 crore. Hindustan Lever leads with a65 per cent market share followed by Nirma at 15 per cent and Godrej Soaps at 7 per cent.

The excise duty on soaps was reduced to 18 per cent from 20 per cent in the previous budget. The impact led to certain reduction in prices. However, this did little to boost the volumes as the penetration level has matured at the city and rural levels. HLL posted a volumes growth of 2.7 per cent and 13.42 per cent growth in value in 1997.

With penetration levels close to saturation, and the industry growth slowing down, analysts believe that the lower end of the market is seeing higher growth. The metros which account for most of the upper end segments, have reached saturation in terms of penetration.However, the eight per cent duty will not augur well for the industry, fear analysts.