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Investment Allowance and Increased Depreciation Key to Investments Print E-mail
Written by Vijay   
Friday, 19 June 2009
New Delhi: CII has recommended to the Minister of Finance that he consider introducing Investment allowance on assets at 25% to 30% of cost in the assessment year in which investment is made, if asset is acquired and put to use by 31st March 2010. Additional Investment allowance may be provided at 10% of cost, for Micro, Small and Medium Enterprises as defined under MSME Development Act 2006.

The investment allowance may be provided if the assessee has entered into a contract of acquiring new aircraft or ship or erection of plant and machinery or construction of building on or before 31st March 2010 and which may be completed and put to use by 31st March 2012.

To buttress the recovery process through accelerated investments, CII has also recommended that depreciation rate be increased from 15% to 25%. The CII statement said that technology is changing very fast and unless Indian Industry able to replace assets fast, India would not be able to compete with other countries in terms of productivity. This calls for allowing for higher rate of depreciation. Presently, the depreciation rate in case of Plant and Machinery is low at 15%, which compares unfavourably with many countries of the world.

In Australia, the depreciation rate for assets depends on its effective life; in Canada, depreciation on Plant and Machinery is allowed at the rate of 20%; however, for Plant and Machinery used in manufacturing and processing, the rate is 30%.

Commenting on the IIP figures released by the Government, the CII Director General, Mr Chandrajit Banerjee said that the emergence of the indices of industry and manufacturing in the positive territory after a period of negative growth is heartening, however, it is still too early to say that a turnaround has begun. A clear trend is not visible yet, though it appears that the worst period is behind us, said Mr Banerjee.

According to the IIP data for April 2009 the manufacturing has moved to the positive territory from the negative 1.4% reported in March 2009 which is encouraging, but still way off from the growth of 6.7% recorded in April 2008, the CII Director General said.

In a press statement issued here CII has observed that IIP numbers for manufacturing over the period from April 2008 to April 2009 still reflects a downward trend. To change this trend, the IIP growth has to pick up significantly.

CII has said that the effects of the fiscal stimulus measures are starting to show up in the movement of the IIP and Manufacturing Index and this is a perfect time for the government to consider giving a fillip to this through the reintroduction of an investment allowance. In current times of economic slowdown when most of the corporates have shelved their plans for expansion this will help attract more capital and infuse more investment in the economy.

Taking a serious view of the global slowdown and potential for cheap imports flooding Indian markets, CII has recommend that custom duty should not be reduced from the peak rate (most common rate) of 10%. CII feels that existing customs duty rate slabs of 10%, 7.5%, 5%, 2% and NIL should be continued. But withdrawal of exemption of 4% Special CVD on imported goods should be considered if CST/VAT is leviable on indigenously produced goods.

Acknowledging the critical role that reduced CENVAT rates have played in ensuring that industry does not get into a protracted period of crisis, CII has said that the recovery process is time consuming and dependent critically on the continuance of the lowered excise rate of 8%. CII has strongly advocated that excise duty reduction announced as part of the fiscal stimulus package should be continued at least till 31 March 2010.

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