Growth and Inclusiveness: FM Provides the Right Balance, Says CII
Written by Anand   
Monday, 03 March 2008
A Balanced, Comprehensive  & Growth Oriented Budget: Sunil Mittal

New Delhi: The Finance Minister has presented a comprehensive, balanced and growth-oriented budget, said Mr Sunil Mittal, President, CII in a Press Release issued here today.

The Finance Minister has managed to address the triple challenge of growth inclusiveness and sustainability very astutely, said the CII President. The budget proposals would go along way in building people and building India, he added.

The beneficiaries of the budget vary from farmers to industry to the average salary earner. And all this without making the budget fiscally irresponsible, said the CII release. However, CII hoped that the expected proposals of the Sixth Pay Commission have been kept in mind while balancing the budget, since any provision for that did not seem apparent from the Finance Minister’s speech.

The cornerstone of the budget has to be the obvious fillip that it would provide to consumption in the country and thereby pump up a demand led growth cycle. This would supplement the neutral stance that the RBI has just indicated in the last Monetary Policy Review, said the CII release. This is very important if the economy has to maintain its current growth trajectory and move to a double digit one, said the CII President.

While largely, industry has every reason to be happy owing to the various favourable measures announced by the Finance Minister, CII is particularly happy that the necessary attention has been given to the social sector including Health and Education. The fact that this has been supplemented by a lot of focus on the rural economy would indirectly fuel a growth cycle, said CII. And eventually, this is one budget, which has focussed a lot on the development of people of this country, which can make the difference between reaping a demographic dividend against the risk of facing a liability.

Stepping up budgetary allocation by 20% and focus on improved access to healthcare along with setting up of SC/ST/minorities Development Finance Corporation are measures that would help build people of India, said the CII president. The announcement of the setting up a non profit organisation for skills and a start up contribution of 1000 Cr from the government will go a long way in developing the skill sets in the country. In addition, CII strongly welcomes announcement by the Finance Minister for setting aside another Rs 750 crores for upgrading another 300 ITIs.

Realising the need for greater R&D, the budget proposal on 125% weighted deduction on outsourced R&D expenses by companies is a step in a right direction to help transform India from a labour-arbitrage to knowledge-arbitrage economy. Further, extending 150% weighted deduction on account of expenditure of in-house R&D in seeds and agriculture implements would help increase productivity in agriculture, he said and alluded that CII had suggested these measures in its pre-budget memorandum. Allocation of Rs 150 crores for extending the National knowledge network would also help in skilling as well as improve knowledge intensiveness of Indian workforce.

According a 5-year tax holiday for Hospitals under section 80 IA of the Income Tax Act set up anywhere in India except specified urban agglomerations and especially in Tier II & Tier III cities is a great step in the direction of increasing access to quality healthcare, said Mr Mittal. This step would help more private sector hospitals to setup facilities and the benefits of section 80IB will be useful to help break-even and enhance viability of such investments, he added.

CII President, Mr Mittal welcomed the move to accord five year holiday from income tax to two, three or four star hotels that would be established in specified districts which have UNESCO-declared 'World Heritage Sites' would encourage greater mobilization of investments for the tourism sector, which is a mass employer.

Welcoming the industry stimulus package, CII President, Mr Mittal said that the reduction of cenvat rate from 16% to 14% was suggested by CII, and was therefore delighted that the Finance Minister has heard the plea. Budget announcements on reduction in excise duty on Pharmaceuticals from 16% to 8%, buses \ truck chasis from 16% to 12%, small cars from 16 to 12% and two \ three wheelers from 16% to 12% were CII’s recommendations on excise duty. CII also welcomes the withdrawal of National Calamity Contingent Duty on PFY, which was also suggested by CII in its pre-budget memorandum. CII President, Mr Mittal also welcomed inclusion of four new services to the service tax net.

Increased outlay for the TUFS scheme will help the textile sector facing the onslaught from the appreciation of Rupee. Gems and jewellery sector would benefit from the exemption from custom duty on few specified items. The reduction in the custom duty to nil on the steel melting scrap and the aluminum scrap is good news for the sector, said the CII release.

Welcoming the other tax proposals of the budget, Mr Mittal welcomed no further reduction of peak customs duty, which was suggested by CII in its pre-budget memorandum. On the direct taxes front, the proposal to increase the exemption limits of personal income tax is a welcome step and would provide greater income in the hands of low income groups, who would in turn help in increase demand for consumer goods. The cascading impact of dividend distribution tax in a holding company structure has been removed and this is a welcome step especially for infrastructure companies who finance infrastructure development through SPVs.

While the budget did not have specific mention of public private partnerships in the infrastructure sector, the increase in allocations to flagship schemes such as Bharat Nirman, JNNURM, NHDP and also the focus on irrigation is positive for the infrastructure sector. In addition, the reduction in customs duty from 7.5% to 5% on project imports is positive for infrastructure projects. In the power sector, the creation of a national fund for transmission and distribution reform is positive.

Some of the measures for developing capital markets include key reforms that will kick-start infrastructure finance. The Budget takes steps for the development of tradable bond, currency, convertibles and derivatives markets by implementing some of the recommendations of the R H Patil Committee report. A major step is the exemption from TDS on dematerialised listed corporate debt instruments. To create a pan Indian market for securities, the Finance Minister also requested the Empowered Committee of State Finance Ministers to look into having uniform stamp duties across states. These are long awaited measures and CII was delighted by the Finance Minister’s announcements, said the release.

The Budget has put a lot of emphasis on the agricultural sector by actually setting a target for increasing gross capital formation in agriculture. Massive allocation for irrigation is very welcome and much overdue. The institution of the Irrigation and Water Resources Finance Corporation will help in maintaining continuous focus on irrigation investment over the years and will lead to enhance productivity. The loan waiver aimed at removing agricultural indebtedness is welcome as long as it does not hurt the public sector banks. For industry, the customs duty waiver to cold chain equipment is a welcome move, said CII. Elaborating further on the issue of the Rs. 60,000 crore agriculture loan waiver, the CII President said that the benefit to the farmers is very well deserved and necessary, however, one has to explore every possible way to find out if the same benefit could not have been given in any other way. A loan waiver should not send the message that a financial obligation, like a loan could be reneged, which would send distortionary messages all across.

Commenting on the announcements by the Finance Minister from the point of view of SMEs, the CII President said that the allocation of Rs.4000 crores for establishing two funds of Rs 2000 crores each by SIDBI for meeting the needs for availability of risk capital & refinancing are expected to give boost to the SME sector, with focus on promoting entrepreneurship. At the same time the relaxation in service charges by CGFTSI and enhancement in exemption limit for small-scale service providers from Rs 8 lakhs to Rs 10 lakhs is expected to relief to entrepreneurs at large.

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