News and Events

CII terms it as pragmatic under the present circumstances

Commenting on the Budget presented by the Finance Minister, CII President Mr Muthuraman said that the Budget had many growth oriented measures and has also made efforts towards fiscal consolidation.

In particular, the timely focus on the infrastructure sector is welcome. An area of concern for industry is the increase in excise duty and service tax from 10% to 12%. At a time when industry is already facing huge increases in input cost, this will further add to the burden. It is possible that this may not yield the revenue that the Minister is looking for and instead result in further slowdown in growth while adding to inflationary pressure.

CII welcomes the attempt at reversing the fiscal slippage of the current year by introducing amendments to the FRBM Act. Successful fiscal consolidation will be contingent upon widening of the tax base and better targeting of subsidies. The commitments to contain subsidy at 1.75% of GDP and eliminate the effective revenue deficit in three years are critical targets introduced in this Budget. CII is hopeful that the government will be able to achieve these milestones. The revenue and expenditure targets set for 2012-13 seem realistic and the fiscal deficit of 5.1% of GDP is achievable. However, according to the CII President, the borrowing level required to finance this deficit is still high and will keep up the pressure on interest rates.

Measures to encourage infrastructure included doubling the tax-free bonds for infrastructure to Rs 60,000 crores, expanding the list of sectors eligible for Viability Gap Funding (VGF) and raising the external commercial borrowings (ECB) limit for key infrastructure sectors. Further, special provisions for specific infrastructure sectors such as power, roads & highways and civil aviation will help bridge the infrastructure gap. The reduction in the withholding tax on ECB for specific infrastructure sectors will also help in lowering the cost of funds.

Sectors such as cold chain, warehouses, hospitals, fertilisers and affordable housing have been allowed investment linked deduction of capital expenditure at an enhanced rate. For the power sector, the waiver of customs duty on coal is a positive development and will help meet the demand for fuel in a country where 70% of power is still generated from it. The reduction in customs duty on equipment catering to sectors likely to witness investment namely power projects, fertilizer, mining and road construction would encourage investments though the measure is a dampener for the domestic capital goods industry.

The Budget has implemented measures to encourage retail investments in equity markets by announcing the Rajiv Gandhi Equity Saving Scheme with a tax break for investments up to Rs 50,000 for individuals with income up to Rs 10 lakh. This will help in deepening the reach of the Capital Markets significantly. The 3 year lock in provision will ensure long term equity holding. Although CII had asked for complete removal of STT, its reduction to 0.1 per cent on delivery based transactions will help bring back volumes to the Cash Equity Market. Removal of the cascading impact of Dividend Distribution Tax is again a very positive and welcome measure. Increase in Customs duty on Gold may help in making gold relatively less lucrative which may help in diverting flow of funds, especially household savings, to the Capital Markets.

Measures to take forward the implementation of the Goods and Services Tax (GST) included the announcement of a negative list of services and the move to harmonise the Central Excise and Service Tax. In particular, the introduction of a one-page common simplified registration form for filing returns and other steps for reducing transaction cost of exporters are welcome.

Given the current economic situation as well as the volatile political situation, the Budget can be termed as realistic and pragmatic. It is sad that the country does not, at present, have a political scenario conducive for the much needed major reforms.