Post Budget Reactions - VI

‘Middle of the road path'

Faced with a daunting task of maintaining nine per cent GDP growth and curbing double digit inflation, the Finance Minister has opted for the ‘middle of the road path'. Renewed thrust on infrastructure aimed through innovative funding and increased role of private sector augurs well for the commercial vehicle sector and tyre Industry. While setting the goal for increased contribution of manufacturing sector, from 16 per cent to 25 per cent, is laudable the detailing of the same is critical.

Tyre industry was hoping that some sector-specific inconsistencies, for example, waiver of Customs duty on key raw-materials of tyre industry not manufactured domestically (that is, Butyl Rubber, EPDM, SBR) and reduction of Customs duty on other RMs with inadequate domestic capacity (that is, NTCF, PBR, Polyester & Steel Tyre Cord and Rubber Chemicals) will be addressed and resolved.

Direct transfer of kerosene subsidy to the beneficiaries will, hopefully, plug the leakages. Self assessment of Customs is one step forward towards the desirable objective of minimising interface between the Department and the assessees. On the whole, the Budget leads the middle path with caution, care and commitment.

Neeraj Kanwar

Chairman, Automotive Tyre Manufacturers' Association

and V-C& MD, Apollo Tyres Ltd.

More room for education sector

The Union Budget has been particularly positive for the education sector, a prerequisite for any country's growth and development. IOn the flip side, India will have the highest number of illiterate adults and a large percentage of unemployable literate people. The Government's allocation of Rs 52,057 crore for the education sector and Rs 21,000 crore specifically for the primary education segment is indeed an encouraging step to not just widely extend the benefits of education but also impact the quality to achieve global benchmarks. There is a need for a PPP model in the sector not just to execute the delivery but also employ modern technology infrastructure across schools enabling rapid proliferation of world-class education.

Another positive announcement was an additional Rs 500 crore allocation for the national skill development fund. Every sector in India is challenged with severe crunch of skilled workforce and such initiatives by the NSDC will no doubt help fill the gap by training about 10 lakh workers in the next 10 years. But, the gap is widening and there will be a need for around 50 crore skilled workers across sectors in India by 2022. The Government and NSDC, in particular, should look at employing technology as a strategic partner to fast track and bridge this gap.

Sanjay Sharma

CEO, Tata Interactive Systems.

Affordable housing hailed

The Union Budget has given major attention to the infrastructure sector and to real estate sector. The market has welcomed the reduction of fiscal deficit target. For the real estate and infrastructure sectors, there are at least six major influencers:

1. Priority home loan limit increased to Rs 25 lakh from Rs 20 lakh. This will certainly help the Lower Income Group of buyers who plan to buy a home through bank loans. As in last budget it was directed that every bank has to maintain 20 per cent of its loans to this priority section, this is definitely a boost for the sector as it will increase demand;

2. Interest subvention of one per cent on housing loans raised to Rs 15 lakh with cost of house up to Rs 20 lakh. Interest subvention is basically an interest subsidy given by the Government on loans. Here, a subsidy of one per cent on loan up to Rs 15 lakh on a house costing not more than Rs 25 lakh is definitely a giant leap so as to boost the demand for affordable housing;

3. Allocation of Rs 58,000 crore to Bharat Nirman projects and proposal to set up Mortage Risk Guarantee fund for rural housing;4. Creation of an Infrastructure Debt Fund to boost infrastructure funding and to increase infrastructure spending by 23 per cent. It has become a very tough task to get loan from banks for the infrastructure projects. Also, after the latest scams, banks are now reluctant to lend to this sector. This fund will certainly ease the entire procedure and help in securing regular inflow of fund for our ongoing and new projects;

5. Plan to allow FII limit in infrastructure bonds up to $25 billion. For the entire infrastructure sector, this is the most important step taken by the Finance Minister.

6. As the Government has also proposed a cut in the excise duty on cement and steel, it will further help the developers in cutting input cost of the construction. However, much more was expected to accelerate supply of affordable housing stocks.

Pradeep Jain

Chairman, Parsvnath Developers Ltd.

Channelise more investment from the US

Various announcements made in the Budget, such as reduction of withholding tax on FII investment in infrastructure from 20 per cent to 5 per cent, more exposure given to FIIs in investing in the Indian debt market and so on, will help channelise greater investment from the US. Focus on developing supply chain for processed food is another area, that can motivate more American companies to invest in India, he added.

The steps being taken by the Finance Minister for fiscal consolidation and to limit over borrowing by the government, reducing the inflationary pressure, reining in budget deficit to the manageable level of 4.6 per cent of the GDP are laudable proposals. However, concrete steps have to be taken to implement these proposals in close consultations with the State governments. He complimented the Finance Minister for evolving a pragmatic PPP model for the country. This address to some of the vexatious issues pointed out by the US corporations while investing in India, such as delays in sanctioning the project, land acquisition, lack of clarity and uniformity among the State governments in attracting the foreign direct investment. IACC is in continuous dialogue with US corporations for motivating them to invest in sectors such as education, health, skill development and in improving the civic facilities, areas that have been underscored by the Finance Minister.

Gautam Mahajan

National President, Indo-American Chamber of Commerce (IACC).

More funds for reinvestment

A much-hyped Budget 2011 paved its way providing relief for some and hard luck for the others. From the sectoral and structural point of view, it has been seen that Budget provided a much needed momentum to social sector investment by enhancing productivity and capacity building. Keeping intact, the current growth rate of 8.75 per cent, the Budget promises to keep the growth rates between 8.75 per cent and 9.2 per cent hinting on to the acceleration of figure. Direct taxes by reducing the surcharges from 7.5 per cent to 5 per cent is indeed welcome news as it would leave more funds with corporate sector for reinvestment. Increase in the indirect tax to the extent of about Rs 11,000 crore would be inflationary as it has been sought through removal of excise exemptions on few products and various service industries such as AC restaurants and hotel accommodations have been brought under the ambit of the service tax. This Budget has left the exporters downtrodden except the three-fold relief such as introduction of self assessment to be introduced in Customs to modernise the Customs administration, proposal to introduce scheme for refund of taxes paid on services used for export of goods and Jodhpur to be included for the development of a handicraft mega cluster. In order to check and control import of edible oil, it was suggested to levy a Customs duty of 15 per cent on crude oil and 22.5 per cent on refined oil, but no steps were taken on those lines.

In case of agro-based companies, there are many input services which are received in respect of businesses which are not associated with output of any taxable goods or services. Due to the requirement of correlation, service tax paid on such input services cannot be utilised, and therefore, adds to the cost. So it was recommended that input service tax paid on such input services to be allowed to be utilised against excise/service tax payable on any other taxable outputs (goods or services) produced/ rendered by other businesses of the company. This was also not addressed to.

No service tax exemption was given on processed food items. The Government of India is allowing five years tax holiday to the Processed Food Industries operating in Special Economic Zone. So to promote the industry, it was suggested to allow I-T holiday for five years and 50 per cent for the next five years to the existing/new food processed industries in rural as well as urban areas to facilitate domestic consumption and export of health food products. But no thought was pruned to it.

J.K. Jain

Vice-President, Federation of Indian Export Organisations.

Higher allocation for infra development

With the balance of a tightrope walker, Finance Minister's Budget has attempted to address all key macroeconomic concerns. Continued focus on infrastructure development has ensured an allocation of Rs 2,14,000 crore which is 23.3 per cent higher than 2010-11 and over 46 per cent of the planned expenditure. Increase in FII limit for investment in corporate infrastructure bonds by Rs 90,000 crore and issuance of tax-free infrastructure bonds by various government undertakings will result in higher investments in the sector. Export duty on iron ore fines and humps has been increased to 20 per cent each from five per cent and 15 per cent, respectively, which will impact the iron ore mining sector. As a welcome step, the stimulus introduced during the downturn by way of excise duty reduction has been extended.

On the construction equipment front, an MRP based excise duty has been levied on packaging, branding and labelling of parts of earth moving machinery with retrospective effect from April 29, 2010.

Vipin Sondhi

MD and CEO, JCB India Ltd.

Impact on housing loan

The Finance Minister, Mr Pranab Mukherjee, has, by and large, given a skip to the real estate sector as he presented the Budget amid rising inflation, tight liquidity, high interest rate, industrial slowdown, delayed reforms and negative market sentiment. Incentives for developers executing low-cost housing projects: This has been much overdue and it's good to see the government finally providing some relief here. Huge opportunity exists for developers who are willing to cater to the bottom of the pyramid and sell homes priced between Rs 4 lakh and Rs 8 lakh a unit targeted at the lower income classes. So far, developers have been avoiding this sector due to several factors such as high cost of land and difficulty in obtaining home financing thereby, making such projects economically challenging. However, with the incentives included in this Budget and hopefully additional incentives to follow, developers will be encouraged to look at this segment more closely and assist in providing sustainable housing solutions.

Chandrashekar Hariharan

Chairman & Co-founder BCIL Zed Homes

Fine balance between agri and industry

After Mr Charan Singh, who gave an emphasis for agricultural growth in India, the Finance Minister, Mr Pranab Mukherjee, has balanced his budget between agriculture and the industry – more towards agriculture – might be in the form of three per cent farm loan rate or agricultural inputs subsidy and creativity in production of agricultural output.

He has to be complimented for three things: Firstly, the Finance Minister is gracious towards income through salary, the filing of Income Tax return is totally waived off up to Rs 5 lakh earnings only, while anticipation was Rs 2 lakh, at least Rs 1.8 lakh has been given.

More relief is for the senior citizens, lowering the age from 65 to 60 so that a Government employee immediately on retirement will qualify as a senior citizen.

The second one is that turning towards Indirect Taxes, bringing 130 products into Central Excise Duty net is a welcome feature and when once the GST comes out, all will be narrowed down.

Lastly, it was hinted that while revising the petroleum prices, the Central will be reviewing the Customs duty on crude oil and reducing the excise duty on petroleum products and particularly the oil prices is a big disappointment.

G.N. Venkataraman

Immediate Past President of ICWAI, Kolkata .

Introduction of very senior citizens laudable

The increase in basic exemption from 160,000 to 180,000 for individuals is welcomed. Reduction of age for senior citizens from 65 years to 60 years is also hailed.

Similarly, the introduction of very senior citizens is laudable, though there may not be many beneficiaries in this age group.

The Sunset clause for Sec 80IA for power sector which has been extended to 2012 is also laudable.

The exemption to salaried class from filing returns up to Rs 5 lakh is also laudable since it reduces the work load for those employees who do not have any other income.

The fact that Form 16 will be treated as a return of income is a welcome measure.

The standard deduction could have been introduced for salary class. While increasing the eligibility for borrowing from Rs 20 lakh to Rs 25 lakh, the interest exemption for house property could also have been raised.

CA M. Ramji

President, Auditors Association of Southern India

Generating more jobs

Overall, the Budget looks quite positive this time and optimistic to see the growth in Tier-II and III cities, with Rs 18,000 crore proposed by the government to be spent on rural development.

Apart from generating employment and overall progress, this will also help all industries to effectively utilise the huge talent and population available in different parts of the country for a sustainable growth. The initiative taken by the government towards the education sector with 24 per cent increase in spent and special focus on rural sector development and setting up broadband Internet in rural India will help improve the employability of youth.

However, there was no mention of extension in the tax benefits under the Software Technology Parks of India (STPI) scheme.

This will be a dampener for the $600billion Indian IT/BPO industry that contributes nearly 5 per cent of the country's GDP. We had hoped that the sunset of the STPI scheme would be extended to coincide with the introduction of the new DTC from April 1, 2012.

Currently, there is a need for direct and indirect support from the government to maintain ‘the India advantage' as a global BPO destination.

It is important to note that in countries such as China and the Philippines, the IT/BPO industry is enjoying unrestrained tax benefits and policy support from their governments and they can pose a great challenge to the Indian IT/ITeS industry in the years to come.

Keshav R. Murugesh

Group CEO, WNS Global Services

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