Depressed investment sentiment, inflation worries may hold back the Finance Minister

With sluggish industrial growth and dampened investment environment, this Budget is unlikely to raise standard rate of excise duty. However, there could be some tinkering in rate for specific sectors.

“There is no doubt that there is tremendous pressure on the Finance Minister to bring the pre-crisis level of standard rate of excise as a part of fiscal consolidation. But we need to understand the overall investment and industrial growth situation. That is why the consideration is not to raise the standard rate,” a senior Government official told Business Line.

Last year while presenting the Budget, then Finance Minister Pranab Mukherjee raised the standard rate to 12 per cent from 10 per cent. It may be recalled that in the wake of the global financial crisis in 2008-09, the standard rate of excise duty for non-petroleum goods was reduced from 14 per cent to eight per cent in a phased manner. This rate was raised from eight per cent to 10 per cent in Budget 2010-11.

Now, on October 29, Finance Minister P. Chidambaram announced the roadmap for fiscal consolidation where he kept the fiscal deficit target for 2013-14 at 4.8 per cent. Since then, there has been a lot of speculation about raising the duty. However, with negative industrial growth (-0.6 per cent) in December, the Finance Ministry is unlikely to take a chance, the official added.

Maintaining the status quo on standard excise duty will not just give relief to the industry, but will also benefit consumers’ demand.

“This is the time for improving overall sentiments and the Finance Minister is very well aware of this,” the official said. But he did not rule out some tinkering in some sector specific rates. These sectors may include oil and sugar, he explained.

Another Government official said that although the headline inflation or wholesale price inflation (WPI) had declined to 6.6 per cent (for January 2013), still, it is not in the comfort zone.

“If the standard rate is raised, it has the potential to impact the overall price level which will fuel the inflation,” he added.

He also said that unlike the past, raising the standard duty will not generate additional revenue as environment is not conducive, on the other side, it may bring down the overall collection.

The Revenue Department is already having a tough time meeting the targets of custom and excise duty collection this fiscal. It is estimated that indirect tax collection might see an overall shortfall of around Rs 30,000 crore.

(This article was published on February 24, 2013)
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