Mumbai, Feb 17 IBNS | 6 months ago

In view of the announcements in the interim budget, Khaitan & Co. Executive Director Nihal Kothari, on Monday said that the much expected reduction in excise duty and service tax to revive the manufacturing and service sector growth has not found favour with Union Finance Minister P Chidambaram, as he has given high priority to containing fiscal deficit and proving subsidy to food and fertilizer sector in the election year. Kothari said, "The Finance Minister has announced reduction in the excise duty in the case 3 sectors facing deceleration in manufacturing growth. The excise duty on capital goods reduced from 12% to 10% on mobile handsets to 6% and in the case of automobile having different duty rate the reduction is by 2% to 4%."


He noted that the customs duty has been reduced on the non-edible oils used in soap making to 7.5 percent and announced exemption of countervailing duty on machinery service tax has been exempted in the case of warehousing of rice and blood banks.

"These changes will come into effect immediately on issue of Notification and will continue till 31 March 2014.The above changes will give some temporary relief to selected sectors," Kothari added.

Daksha Bakshi, Executive Director, Khaitan & Co. said, "In the face of election, the FM was indeed bringing to the attention of the nation the 'growth' and 'development' achieved, by the UPA government to negate the allegation of policy paralysis."

Bakshi said, "An important statement was that the CAD needs to be contained through foreign currency inflows whether through FDI, FPI investments or through ECB and that there is no case for doing anything to reduce these flows. Some small measures to ease the immediate pressure on some of the ailing sectors of the economy by reducing the excise duties."

Sanjay Sanghvi, Partner, Khaitan & Co. said, "Effort of Govt (FM) was more to give a report card of its performance last year. As expected, no change in tax laws."

Moreover, the Indian Chamber of Commerce (ICC) felt that the interim Budget for 2014 -'15 announced by Chidambaram on Monday, will enhance fiscal consolidation and play a role in reviving the growth cycle, and boost manufacturing.

India's economic growth slowed to a decade low of 4.5 percent in 2012-13 due to global as well as domestic factors, like high interest rate.

The government took several steps, including setting up of Cabinet Committee on Investment (CCI) under chairmanship of Prime Minister Manmohan Singh to fast track big ticket projects.

ICC said that the interim Budget will somewhat be able to arrest industrial decline and revive growth cycles and it can be expected that growth in Q3 and Q4 of 2013-14 will be at least 5.2 percent.

Growth rate for 2014-'15 has been pegged at 5 percent, which is a revival.

ICC noted that the government aims to peg revenue deficit at 3.3 percent and fiscal deficit target at 4.1 percent next year.

The ICC welcomed the decision to infuse capital in PSU banks worth Rs 11,200 crore.

Banks will lend Rs 8 lakh crore to the agricultural sector in FY15. This will significantly strengthen the country's Banking infrastructure, and will boost Economy & Agriculture - ICC said.

Excise duty has been reduced from 12 percent to 10 percent for capital goods and consumer durables.

Excise duty cut for small cars is down to 8 percent from 12 percent.

Excise duty on SUVs down by 6 percent from 30 to 24 percent.

Excise duty on two-wheelers is also down to 8 perecent. Excise duty on medium cars down from 24 percent to 20 percent.

ICC said that the announcement of a moratorium on interest on student loans taken before Mar 31, 2009, will benefit approximately 9 lakh borrowers and will boost the Education sector.

Announcement of Rs 200 crore Venture Capital fund for Scheduled Caste entrepreneurs, will boost the process of inclusive growth, ICC noted.

Moreover, the proposal to contribute Rs 1,000 crore for Nirbhaya fund for women safety - is an extremely important step in the right direction, ICC said.

ICC noted that excise duty on mobile handset to be 6 percent on CENVAT credit - this will encourage domestic production and create economic opportunities.

Abolition of service tax on loading, unloading and storage of rice - rice, being a staple food in south and east India, this will provide relief to the end-consumers and is a positive step, ICC said.

Moreover, ICC welcomed the Rs 1,200 crore special assistance to North East states - an important step which will boost the North-East region which has tremendous economic potential.

The announcement that power sector will add 50,000mw ; also, plans for four 500 MW solar power projects. These new thermal, hydel and solar projects, and capacity addition will boost the economy, the Chamber said.

Overall, the ICC expects that this interim Budget will play a role in boosting growth and manufacturing, and will be able to set the path for further fiscal prudence and consolidation.

However, food inflation remains a concern, and a rational combination of Monetary Policy interventions and enhancement of Processing infrastructure for minimizing supply side bottlenecks is necessary.

Also, the DTC and GST will have to be rolled out by the new government after elections for promoting a sustainable growth.

Dr Pawan Goenka, Executive Director & President (AFS), M&M, said, "We are delighted at the steps taken to boost manufacturing sector and especially the auto industry. From where the industry is today, the budget announcements are quite positive and should give relief to the auto industry by boosting demand."

Goenka said, "If these initiatives are maintained in the final FY15 budget, it should be a much needed positive stimulus for overall manufacturing sector in India."

Pravin Shah, Chief Executive, Automotive Division, M&M said, "We are delighted at the Interim Budget announcements which have been taken to boost the manufacturing sector and especially the automotive industry. These announcements are positive and should help the auto industry witness some turnaround. Mahindra welcomes the reduction in excise duty in automobiles across the product range including the SUVs."

Rohit Gadia, Founder and CEO, CapitalVia Global Research Limited said that the interim budget is not expected to have any major impact in the economy apart from few positive impacts on the auto sector.

Gadia said, "As the tax rates has been kept same and no other major changes has been brought in, I think this budget was basically a safe play from the existing government."

He added, "There's some good news for the Auto company and Capital Goods as the excise duty was cut for small cars to 8 percent from 12 percent earlier, 20 percent on large and mid-segment cars and excise duty has been reduced to 24 percent from 30 percent earlier on SUVs."

"Rich people who earn more than rupees 1 crore a year will have an extra impact as per the budget as they have to pay a extra 10 percent surcharge on their income. The finance minister exempted rice from the service tax ambit which now stands at 12%," Gadia said.

There was no change in corporate rate tax rate for domestic companies and foreign companies which stand at 33.99 percent and 43.26 percent percent respectively.

Joe King, Head, Audi India said, "We are happy with the proposals made in the Budget. We welcome the specific steps taken to support the automobile industry. We would be definitely passing on the benefits in reduction of the duties to our customers."

King added, "The auto industry has been contributing significantly to the GDP and generating employment directly and indirectly and we firmly believe that an upswing in automotive demand will boost overall economic growth."

Kumar Kandaswamy, Senior Director, Deloitte in India, "Any reduction in price is welcome in a difficult market. This will particularly make the borderline customers - those that are choosing between a used car or a new one or between segments or between a two-wheeler and a car - to make a decision in favour of a car or to look for a higher segment."

"The fact that the rate cut applies to the SUVs is significant. We believe this category has benefited from the customers looking to upgrade from their premium hatchbacks and entry sedans," Kandaswamy said.

He said, "However, this action alone will not help build sustained demand growth in the coming months and years. Revival of robust demand growth will be determined by the growth rate of per capita disposable income over inflation, which today is very unfavourable."

Kandaswamy added, "As can be appreciated, the segment of customers who buy the entry level cars are the ones that are deeply affected by the high inflation and are spending out of their savings. Such customers, and this must be sizeable number, will get to buying cars only after they see their disposable incomes grow on a sustained basis."

Saloni Roy, Senior Director, Deloitte in India said, "Being a Vote on Account, the Finance Minister did not announce any changes in tax laws but announced certain rate changes in excise /customs duties to be effective till 30 June 2014 with an aim to stimulate growth in domestic manufacturing sector."

"The reductions in excise duties include all goods falling under chapter 84 and 85 : 10% instead of 12%; mobile handsets: to attract excise duty at 6% with cenvat credit and 1% without credit; and reliefs to the automobile sector," Roy said.

"The automobile sector has been witnessing a slowdown in sales. And now with the passing of benefits of excise reductions to customers, the sector may see some improvement in sales. To encourage domestic manufacture of soaps and oleo chemicals the customs duty has been rationalized on imported inputs such fatty acids etc," she said.

"Likewise the domestic road construction industry has been provided concessions. There are amendments in service tax too, which provides for inclusion in the negative list of loading, unloading, packing and storing of rice as well as exemption on services by blood banks. The minister has implored political parties to pass the necessary laws for implementation of GST in 2014-15, which is a much awaited indirect tax reform in trade and industry circles," she said.

Vinay Jain, CMD, AVJ Group said, "The interim budget 2014 is progressive on many counts. The excise duty cuts on capital goods and automobiles will invigorate domestic manufacturing sector which has been affected by a slowing economy.The impetus given to rural and urban housing through the allocation of 6000 crores and 2000 crores respectively, will definitely bring affordable housing to a large section of the society, while giving a boost in the arm of allied sectors like, steel and cement."

"The sentiments of the housing and construction sector will witness an improvement. However, it is quite disappointing, that the long held demands of the real estate sector, which was expecting more sops to boost domestic demand and reduce borrowing costs, have not been addressed in the current budget. We expect the hon'ble finance minister to take cognizance of the seriousness of our demands and take appropriate remedial measures."

(Posted on 17-02-2014)