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ACMA: Growth Oriented Budget for Automotive Component Industry Print E-mail
Written by Vijay   
Tuesday, 08 April 2008
New Delhi: The Automotive Component Manufacturers Association of India (ACMA) has welcomed the Union Budget 2008-09. According to Mr. Sanjay Labroo, President, ACMA, the Budget has many initiatives that will promote growth of the automotive industry.

One of the key demands of the industry was that Customs Duty should not be reduced any further this year as the depreciation of the dollar has almost completely eroded the duty protection. The Finance Minister accepted this suggestion of the industry.

The reduction in the Cenvat rate from 16% to 14% and the reduction of Excise Duty on Small Cars, Two/Three Wheelers, Buses, Hybrid and Electric Vehicles will promote growth in the automotive industry, Mr. Labroo added.

The reduction in the Customs Duty on Steel and Aluminum Scrap from 5% to 0% is a very welcome step as these are critical raw materials for the auto-component sector.  However, this is not adequate to address the issue of inverted duty structure in the automotive industry, for which the duty on aluminum and several grades of steel also needs to be brought down to zero.

A further encouragement to industry is the reduction in Central Sales Tax from 3% to 2%. The Government is moving in the right direction to introduce GST from April 2010.

Another step in the right direction is the extension of 125% Weighted Income Tax Deduction on expenses incurred on outsourced R&D. Mr. Labroo said that this will promote automotive R&D and the creation of intellectual property by Indian companies. However, companies claiming 125% weighted tax deduction for outsourced R&D cannot also claim the 150% deduction on in-house R&D. It is like an option given to companies to either do in-house R&D or to source out their R&D. Mr. Labroo emphasized that both, in-house as well as outsourced R&D should receive the benefit of tax deduction to make this scheme practically useful to industry.

Mr Labroo also welcomed the Finance Minister’s decision to set up a special institution on a non-profit basis to promote skill development in the industry. It is heartening to note that the Finance Minister has recognized the need for skill building, Mr. Labroo said.

Mr. Labroo had only one small concern on whether inflation can be kept under control and its consequent impact on interest rates.
The Budget, otherwise, continues with the economic growth & reform agenda and would have a positive impact on the auto component industry.

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