Economy

BudgetLine-IX

| Updated on March 10, 2011 Published on March 10, 2011

Mr. Dinesh Thakkar, CMD, Angel Broking.

Mr Manoj Chugh, President, EMC- India & SAARC   -  Business Line

Dr. P. Nandagopal, MD &CEO, IndiaFirst Life Insurance Company Ltd.   -  Business Line

Mr Bijay Agarwal Managing Director, Sattva Group   -  Business Line

Coir and allied products caught in excise net



The concessions for green energy is welcome since it will encourage the manufacturing and usage of green energy and would educate the general public about its potential in depth.

It is unfortunate that the coir and the allied products such as rubberised coir mattresses have been brought into Central Excise net which have enjoyed exemption over several years.A large section of downtrodden people of seven lakh of whom 50 per cent are women are employed in the coir industry. The industry has to face the threat of severe competition from other products such as PU foam, spring, cotton and so on. Being a natural product, bio-degradable, environment-friendly the coir products deserve encouragement and could be totally brought out of the Central Excise tariff. Exemptions from excise duty for equipment required for storage facilities on agriculture produce will attract good investment and this will also help reduce wastages and loss. The concessional loan for agriculture and food processing at four per cent for prompt payment could be extended to coir and coir products.

S. Sundaresan

President, Fibroflex (India) Pvt Ltd

Revenue neutral for ceramics sector



The early introduction of GST is good for the industry as this will make the industry more competitive fuelling more consumption. GST would subsume most of the Central and State taxes like excise and sales tax, making rules easier for the industry and other tax payers. The implementation of GST is expected to further rationalise prices for final consumers. The standard rate of excise duty has been maintained at 10 per cent for a more stable consumption pattern. In a nut shell, this Budget was revenue neutral for ceramic industry.

Abhishek Somany

JMD, Somany Ceramics

Clear thrust on funds availability

The market is starting to warm up to the Union Budget, after being a little indecisive on the first day. Prior to the Budget, the Indian markets had a ravaging time and the last thing the market needed was a disappointing budget. But fortunately, the Finance Minister has delivered. After all, it was restraint that was required on the expenditure side. Even though on some counts, such as subsidy estimates, the targets are likely to be overshot, but because of the absence of any major populist measures and substantial restraint on most items of expenditure, any overshooting of the fiscal deficit is likely to be contained to 30-40 bp of GDP.

There has been a clear thrust in the last few budgets to increase the availability of funds to the economy, especially to the infrastructure and priority sectors. Continuing this trend, in this Budget as well, key announcements included increase in FII investments in corporate bonds from $20 billion to $40 billion, increase in tax-free bond limits and removing medium-term capital constraints for PSU banks (Rs 6,000 crore capital infusion this year). Together with the impending awarding of new bank licenses and increased foreign bank participation (being worked upon by the RBI currently), all this should help narrow the gap between savings and investments, keeping interest rates in check. On a positive note for the markets, the Budget has also permitted foreign investors to directly invest in Indian mutual funds.

Dinesh Thakkar

Chairman & Managing Director, Angel Broking.

The fiscal deficit conundrum

During the Budget speech, the Finance Minister, Mr Pranab Mukherjee, had indicated that the Government could bring about further improvement in fiscal balance, and keeping this in view, he has brought down the fiscal deficit target for 2010-11 from 5.5 per cent to 5.1 per cent of GDP. The fiscal deficit target for 2011-12 is also kept lower at 4.6 per cent against the earlier estimated 4.8 per cent. While, on the face of it, the above may give a rosy picture of the country's fiscal health, there are certain finer aspects that must be noted here:

The fiscal deficit could be reduced from 5.5 per cent to 5.1 per cent mainly due to the favourable base effect of GDP. Due to the revised base, the GDP have grown by about 23 per cent.

Besides, the surging inflation based on WPI Index also helped improve the growth of nominal GDP. Due to the higher nominal GDP, the fiscal deficit numbers show a declining trend.

The continuing unrest in Libya will put further pressure on global crude oil prices, which will ultimately put pressure on the country to either absorb the excess burden by further subsidising the oil companies so as to avert a hike in oil prices domestically or hike the crude prices. If the Government chooses the option of subsidising oil companies, it will through the entire fiscal deficit calculation as well as the Government's lower borrowing programme of about Rs 3.43 lakh crore into disarray. Thus, the only solution from the fiscal imbroglio seems to be complete deregulation of oil prices. There has to be a clear trade off between political compulsions and growth lest the Government continue to live with the new ‘impossible trinity', that is, “Fiscal Deficit-GDP-Inflation”.

G.K. Murthy

Chief Manager (Chief Economist), Vijaya Bank.

More fillip to

R&D activities

The India Semiconductor Association welcomes the Budget 2011 proposals which will stimulate manufacturing and innovation in India. The Government's plans to come out with a National Manufacturing Policy and promote domestic value addition by rationalisation and reduction of duty structures is commendable. The increase in weighted deduction of payments to National Laboratories, Universities and Institutes of Technology to 200 per cent will give fillip to R&D activities. In addition, the efforts to strengthen the budgetary allocation to NSDC will produce skilled workforce, which can be readily deployed in the industry.

Poornima Shenoy

President, India Semiconductor Association.



Not enough initiatives for medical sector

Though few initiatives have been taken for this sector, they are not enough. Nothing has been done to improve the conditions of the government hospitals. Baby steps could have been taken to reduce this gap. Most of the State governments are already cash starved, and would have expected investments from the Centre to do something in this direction. Investing in this sector rewards long-term players given the fact that the break-even period lies close to five years.

Nothing was done in the Budget for medical education. Taxation of services could have been avoided, and instead the services could have been made less expensive, making the masses to go for preventive check-ups and treatments. Unfortunately, now people would avoid visits to healthcare facilities. The import of medical equipments did not get any tax exemptions.

Dr. Shantanu Jaradi

Managing Director, Dentzz Dental Care Centres.

Tax holiday for

IT may end soon

Reaping tax benefits for over ten years to become a $76-billion industry, the Indian IT industry is fully aware that their tax holiday is ending soon. Although this year's Information Technology Budget does not offer any good news on the tax front, a large section of the Indian IT industry will be pleased to hear higher allocation for infrastructure and education. But small and medium IT companies who depend on tax breaks to stay competitive were hoping that the Finance Minister would not disappoint them.

Zainul Tinwala

CEO, H.T.Impex.

Commitment to PPPs gets a thumbs-up



The Budget 2011-12 has been a mixed bag with very little for both developers and customers to cheer. The extension of interest subvention of one per cent on housing loans up to Rs 15 lakh and raising the priority home loan limit from Rs 20 lakh to Rs 25 lakh is a welcome move. However, rising rates of interest and cost of property have negated any benefit that the proposed move could bring to home owners. The proposed investment-linked deduction to businesses that develop affordable housing should help promote the creation of affordable housing for the middle-class. The commitment to developing PPPs is another element that gets a ‘thumbs-up'.

Pravin Malkani

President, Patel Realty India Ltd.

A lot of positives

The Budget is positive in its reform direction. The FM clearly stated that the new legislations regarding insurance, pensions and banking would be tabled in this session of Parliament. This is a welcome move considering that it took lot of time for evolving the consensus on the proposed reform especially about insurance.

On the direct taxes side, the clear reference to the DTC being effective from April 1, 2012, is again a positive statement considering that DTC would be a comprehensive code that would consolidate various aspects of income tax and hopefully address the major issue of treating the long-term saving products differently from the short-term saving products.

The fact that there are no new increases in the service and excise taxes is again a positive move. The Government thrust to move from a subsidised regime of essential commodities to a direct cash transfer to the BPL families would help the poor better and reduce substantially the inherent leakages leading to better fiscal deficit management.

Dr. P. Nandagopal

MD and CEO, IndiaFirst Life Insurance Company Ltd.

Builders feel neglected

The Builders' Association of India (BAI), an apex body of engineering construction contractors and builders, expressed its dissatisfaction with the Budget 2011-12 proposals.

While the Finance Minister has given a major boost by allotting Rs 114,000 crore additional investment to infrastructure development and providing Rs 20,000 crore for long-term lending to contractors by the Institute of Investment Finance Corporation of India (IIFC), but ignored the most critical need — housing of the “Aam Admi'. Neither any sops are offered to the common man in the form of deductions or incentives to meet his requirements for a roof over his head, especially in the urban areas.

As it is, the demand-supply gap in the urban areas which is currently around 25 million units is likely to widen over the next couple of years. Proposal to increase home loan subsidy from Rs 10 lakh to Rs 15 lakh will benefit only a small number of people, he added, and further said that even the long-standing demand of granting industry status to the real estate sector has been ignored.

No wonder, BAI is quite disappointed with the budget proposals.

Anand Gupta

Treasurer, Builders' Association of India.



Balanced, growth oriented approach

The Union Budget recognises the role Information Technology (IT) plays in the overall economic development and service delivery. Initiatives such as rural broadband connectivity to all 2,50,000 panchayats, establishing GST Network (GSTN)- IT infrastructure backbone for GST, proposed norms for entry of new banks in the private sector and the mandate for public sector banks to cover rural villages, recapitalisation of regional rural banks, connectivity to all 1,500 institutions of Higher Learning and Research through optical fiber backbone by next year along with various IT initiatives taken for efficient tax administration such as e-filing and e-payment of taxes, building e-courts, implementation of technology advisory group, recommendations and focus on green, will boost overall expenditure and opportunities in the IT sector in the country.

The Finance Minister has taken a balanced and growth-oriented approach, acknowledging the opportunities and addressing the pain points in an all-inclusive manner. The Government's recognition of the opportunity in the rural economy and plans for comprehensive policy for further developing PPP projects is a welcome step. Increased outlays on education with an emphasis of skilling the youth; overall social development and improving India's competitiveness in the areas of manufacturing, research and innovation augurs well for the overall inclusive growth of the economy.

Manoj Chugh

President, India and SAARC, EMC Corporation.

Legal process outsourcing stands to benefit



Legal is a field which is hardly affected by the Budget this year namely the law firms and LPO across India. It is not a hidden fact that India is gaining a heavy business through the LPO industry, which is a growing sector in the filed of outsourcing. Though this is good news for the Indian market (as the foreign currency will flow in India) but the same is not accepted by the foreign market.

However, the Budget has its own plus and minus points. The financial eye on LPO seems good, the big legal process outsourcing (LPO) company would look for inorganic vertical acquisitions of smaller pure-play LPO companies in 2011.

Revenues from the offshore legal services industry are expected to reach more than $440 million by end 2011. However, the industry seems to be picking up pace much faster as the global economy recovers.

There is a gradual shift towards recurring business and multi-service contracts. Further, the services offshore are a blend of legal and support services such as document review, legal research, litigation support, accounting and IT services. This surely will add up to the tax revenue growth in the Budget this year.

Samreen Syed

Senior Officer Legal

Emerson Electric Company

Upset for IT sector



The Budget 2011 has not been satisfactory this year, on the contrary, it has definitely upset the IT sector. The Budget has ignored the extension of tax benefits to IT industry under the STPI scheme and has also raised the MAT from 18 per cent to 18.50 per cent. The general reduction in corporate surcharge from 7.5 per cent to 5 per cent, however, will give some relief to the IT industry as well.

The $60-billion IT service industry is a major contributor to the country's GDP. It is currently facing a lack of volume growth and pressure on the liquidity front.

The Budget has shattered India's growth vehicle, the IT industry by ignoring the extension for STPI scheme and the increase in MAT rate.



Govind Rammurthy

CEO & Managing Director, eScan

Far reaching changes

The Budget has effected far-reaching changes in the fields of central excise duty and customs duty. These changes are more than those spelt out in the Budget speech of the Union Finance Minister, Mr Pranab Mukherjee.

Some of them are worth mentioning.

Where the details of particulars and clearances reflected in the regular books are of accounts, but Excise Duty is not discharged, the maximum penalty imposable is brought down from 100 per cent to 50 per cent.

Similarly, any inputs used in the factory are now entitled for Cenvat credit against usage “in the manufacture of final products whether directly or indirectly” as existing now.

Thus, even a pump used for drawing water from the borewell or an air-conditioner used in the control room is now eligible for Cenvat.

Similarly, input services such as rent-a-cab services, mobile telephones, video conference facilities are all eligible for Cenvat credit so long as they are used within the factory premises.

The biggest change that will have far-reaching effect is levy of 1 per cent excise duty on hitherto exempted goods such as fertilisers and common usage items like slates, flavoured milk, fly ash and tender coconut and the list is running to 76 items and they are now liable for excise duty without Cenvat credit facility on inputs or input services.

This is an indirect levy of almost 2 per cent since the raw material used there for would also attract excise duty at one per cent.

For instance, fly ash being the raw material for manufacture of bricks is also liable for one per cent excise duty at fly ash stage and finished bricks are also liable for duty of another one per cent tax and with no Cenvat credit benefit, the total liability is almost 2 per cent.

On the service tax front, a sea change is brought in by introduction of tax on hospital services including diagnostic services which is made applicable for all the hospitals with more than 25 beds. However, central A/C facility is made a pre-requisite for such levy and now we may find many corporate hospitals going back to window or split A/C system to avoid service tax liability.

Exemption from audit and scrutiny for assessees with less than Rs 60 lakh annual turnover is a welcome feature and retaining the SSI exemption for central excise up to Rs 1.50 crore and service tax up to Rs 10 lakh does not make sense, particularly with the huge number of services being brought into the tax net and it becomes impossible for the department to manage such a huge assessee base.

G. Prabhakara Sastry

Senior Tax Consultant, Vizag.

Impetus to

affordable housing

There is a huge gap between the demand and supply of homes. By some estimates upwards of 24 million homes are required by country. It would follow that the real estate sector could do with a high level of impetus. The Budget has tried to provide an impetus to the affordable housing segment by bringing houses up to Rs 25 lakh into the priority lending for home loans. Allowing deduction for investment into affordable housing is a positive move and should accelerate investments in affordable housing.

The budget has been silent on the extension on Sec 80IA and 80IB an important factor in the construction of unit sizes below 1,200 sq ft.

There was little in the budget for the commercial real estate development. However, the proposed increase in MAT from 18 per cent to 18.5 per cent on book profits coupled with the proposed levy of MAT (Minimum Alternate Tax) on developers of SEZs as well as on units operating in SEZs was something that could have been avoided. This is surely going to impact the profitability of the industry.

This was also unexpected as the same was originally to be rolled out with the new Direct Tax Code (DTC) that is proposed to be rolled out in the next year.

Lastly, the budget has not made any mention of FDI in retail which is an opportunity missed. The retail sector property development would have got an excellent impetus through foreign investments into multi-brand retailing.

Bijay Agarwal

Managing Director, Sattva Group.



BUDGETLINE Business Line wishes to thank readers for sharing their Budget views. This column concludes today.

Published on March 10, 2011
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