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BUDGET REACTIONS
Milind R Lanjewar, IRS (C&CE)Though the Indian economy has shown robust growth in last few years, the situation on agriculture front was pathetic. For the first time the contribution of agriculture sector in GDP has come down below 20 percent and suicides by farmers in different states underlined the worsening situation of farmers in India. The reform process should have human face and in this Budget the Finance Minister had precisely focused on that. For sustainable growth it is necessary that the benefit of growth should be trickle down to the poorest of poor. The proposals like increased amount for credit to farmers, creation of additional irrigation facilities, 34.2 percent rise in fund allocation for education and 21.9 percent rise in fund allocated for health sector etc. indicate that the Finance Minister is keen to make an economic growth more inclusive so that the poor will be benefited from the economic reforms. Though the Budget has touched all the important issues like agriculture, health education and employment etc it has not addressed one of the important infrastructure issue i.e. power. In many states constant load shedding has not only affected the industrial growth but the Aam Aadmi is also suffering a lot. Our country is facing acute shortage of power even though the per capita power consumption is very low (just about 500 KW) compared to other developing countries. The
revenue proposals in the Budget are on expected lines except duty
reduction for evasion prone commodities like Plywood and Pan Masala.
The estimated duty evasion from Pan Masala (including Gutkha) is around
Rs 1000 Crores and that from Plywood is Rs 500 Crores. The Reduction
in duty will hopefully increase the tax compliance from these commodities.
The proposals like reduction in peak rate of customs rate duty, bringing
more services in tax net, Excise duty cut on petroleum products etc.
are not a surprise. It was expected that this Budget will provide
a roadmap for GTS (Goods and Services Tax) to be implemented in 2010,
however no significant step has been taken towards this goal in the
Budget. Valuation of job work goods is a matter of litigation and this Budget has tried to provide a permanent solution to it. Vide Notification 9/2007-CE (NT) dated 1-3-2007 a specific rule 10A dealing with the valuation of goods manufactured on job work basis has been inserted in the valuation rules. Till date job work valuation is done as per the Ujjagar Print case. Section 4A was added to Central Excise Act mainly to reduce valuation related disputes like post removal charges. However, later on this section was mainly used to get rid of Ujjagar Prints case. Many items like cosmetics, footwear, medicines etc. were added to MRP scheme by way of Notification under Section 4A so that assessee need not to pay duty merely on cost of raw material and job work charges. Thus this amendment not only buried the Ujjagar Prints case but also reduced the importance of Section 4A. However, the rule 10A may have some potential of litigation and no doubt it can be challenged in different judicial forum. Some assessee may find it difficult to digest that position established by Apex Court is changed by way of merely inserting a rule. Similarly it will be interesting to see how this rule deals with certain situation like where buyer and job worker are related or disputes related to meaning of job worker as provided in the explanation to the rule. Section 135 of the Customs Act was providing maximum punishment of seven years of imprisonment only when the goods are covered under section 123 of the Customs Act. Section 123 of the Customs Act shifts the burden of proof that the goods are not smuggled on the person from whom the goods are recovered. For other offences the maximum imprisonment is upto to 3 years. Due to liberalization of economy the nature of tax evasion is now shifted from outright smuggling to commercial fraud. It was necessary to delink Section123 with Section 135 of the Act. The amendment to Section 135 will provide maximum punishment of seven years of imprisonment to all major offence including Commercial fraud. |
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V. B. VYAS, SR. MANAGER, Pidilite IndustriesMaker of a 'dream budget' has ventured into presenting a 'cream budget' this year. Time will prove whether any cream is yielded either for the exchequer or for the masses who are considered to be the so called beneficiaries. Lolly pop of Rs. 1,000/- in direct tax to salaried employee in lower income group can hardly make any difference since it is not across the groups irrespective of the income of the salaried employee. As far as indirect tax proposals are concerned, Hon'ble FM has holy intention by reducing excise duty on cement whether manufactured by mini cement plants or by other than mini cement plants. Spontaneous effect was evident by sharp slash in share prices of cement giants to the extent of 8 to 10%. Will these giants keep quiet ? Will the shareholders of these giants be happy? Will the people planning to purchase a small flat be benefited ? Answer is simple ' NO ' because in time to come manufacturers will smartly introduce the packages containing the quantity in excess of 50 kg for sale through retail outlet so that they remain outside the purview of Standards of Weights & Measures (Packaged Commodities) Rules, 1977 thereby not requiring to declare Maximum Retail Price on such packages. This would enable them to recover the same or slightly more amount from the ultimate consumers. His intention would thus remain a myth which can never curb inflation. Another holy intention is to fulfill the commitment of the government to provide and finance secondary and higher education by introduction of surcharge @1% of the aggregate of duties of excise (Clause 126 read with clause 128 of the Finance Bill, 2007). This is a new levy in addition to education cess @2% imposed in Budget 2004. If this amount has to be utilized for the specified purpose, it has to have separate accounting code. This will create avoidable 'add on drudgery' to the trade and industry of showing it separately in the sale / import documents. No doubt, quite a number of people in the government employment would get some work though unproductive. But is so much of scriptory work really required? Here again intention though good will not produce desired results because cumbersome exercise is like 'aamdani atthani aur kharcha rupaiya'. Moreover, netizens should note that in my opinion, this surcharge being a new levy, it would not be payable on goods already manufactured and lying as stock with manufacturer as on 28.2.07 as held by the Apex Court in the case of CCE Hyderabad v/s. Vazir Sultan Tobacco Co. Ltd. (2002-TIOL-215-SC-CX). Hope that the wisdom prevails on time and suitable clarifications are immediately issued. |
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| Mr.Aditya
Handa, Chief Financial Officer, Claris Lifesciences Ltd 1) Over all a good budget. 2) Service Tax on Mobile VAS may have some impact but not to a great extent. Don’t expect any impact on end consumer prices for mobile content 3) Growth of Mobile subscribers would lead to high revenue growth as well as profitability. |
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Mr.
Sudhir Sanghi, FBT disappointing The Budget in the given politico-economic constraints, it can be seens as a progressive budget where mostly status has been maintained. A few sops has been given here and there for Agriculture, Education and SMEs. The allocation for National Highway Development Programme is proposed to be increased from Rs. 9,955 Crores to Rs. 12,600 Crores which is a small increase and is in the right direction. The present condition of inflation and overall political scenario, it would have been difficult for any Government to do anything very much different. The Finance Minister announced that the National level goods and service tax will be reduced from next fiscal. When such was the case, one fails to understand while the Central and State Governments wasted so many resources by introducing VAT and Service Tax, which will in any case have to be removed with the introduction of GST. Enormous amounts of resources for spent in introduction and administration as well as creating awareness of these taxes, which could have been avoided. The Finance Minister can take credit for achieving the targets as far as fiscal and revenue deficits are concerned. The Finance Minister has continued with the reduction in the Customs duty rates by reducing the peek Customs duty rate on non-agricultural items from 12.5% to 10%. Customs duty on Polyester is proposed to be reduced from 10% to 7.5%. In the Edible Oil category duty on Sunflower Oil is proposed to be reduced by 15%. There is no change in general CENVAT rate. There is a relief to the SME Sector by increasing the excise duty exemption from Rs.1.00 Crore to Rs. 1.5 Crore. Excise Duty for Plywood has been reduced from 16% to 8%. There is also a Five Year Tax Holiday for new star hotels. In the Direct Tax regime there is no change in the rates. And the relief given to the tax payers is meager. The threshold limit of exemption has been increased by Rs.10,000/- and deduction in respect Medical Insurance Premium under Section 80D increased to a maximum of Rs.15,000/-. On the corporate tax side, surcharge on Income Tax on all firms and companies with a taxable income of Rs.1.00 crore or less has been removed. The increase in the rate of Dividend Distribution Tax from 12.5% to 15% on Dividend distributed by companies is a discouragement to investors. The Fringe Benefit Tax, which is the worst form of direct taxation and is a disincentive for industries and has been opposed by everyone, has not been removed. This is a very big disappointment. The Banking cash Transactions Tax, which has also not served any useful purpose is sought to be continued. This is another disappointment. |
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Mr. Shantanu Prakash, Managing Director, Educomp Solutions Ltd. "We are quite happy with the budget FY2007. It underscores the fact that education is a top priority for the government. Some of the significant provisions like doubling spend on secondary education, increase in education cess, more than doubling spend on Teachers training , 34% increase in overall education spend are all very positive indications for our sector. Educomp will be one of the biggest beneficiery of the increased spend on secondary education and Teachers Training being the largest teacher training company in the country as well as the leader in implementing Public Private Partnerships models in Education via the Sarva Shiksha Abhiyan. With FM's equal emphasis on secondary education in this budget, we should see a multi-year consistent increase in education spend. The jump in spending on Teachers Training in this budget validates?Educomp's long held belief that Teachers are at the heart of the Education ecosystem." |
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S.P. Srivastav Member Settlement Commission Delhi On the whole budget is growth oriented with special emphasis on agriculture & rural development but at the same time on taxation reforms particulary in indirect taxes it seems F.M. has run short of steam & instead of laying down the road map for an unfied GST proposed to be put in place by 1st april 2010,the same has been deffered by entrusting it to the empowered committee on vat. similarly on the service tax rationlisation of existing rates was called for besides expanding the regime which too was halfway.At the same time some of steps ontax admn. reforms are really laudable & will go long way in better tax compliance & improving image of the tax machinery inaddition to reducing overall cost in transaction & time. |
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Ganesh Kumar Gupta, President, FIEO The Annual Economic Survey highlighted the pathetic situation on agriculture front. The share of agriculture in GDP has come down to 18.5% while share of manufacturing and services improved to 26.4% and 55.1% respectively. What was equally astonishing was virtually nil contribution from agriculture in the overall average growth in GDP in last five years. In an economy where more than half of the population is dependent on agriculture, this is an alarming situation. No inclusive growth is possible without sizeable contribution from agriculture. The budget announced following measures for promoting agriculture: 2,25,000 crore farm credit proposed in the new budget. An additional 50 lac farmers to be brought under farm credit over and above 53.37 lac farmers which were brought under institutional financing mechanism. An additional irrigation potential of 24 lac hectares to be implemented. A special purpose fund for coffee, rubber, spices, cashew and coconut on the lines of special purpose tea fund will be notified shortly. For
addressing social infrastructure government has increased outlays for
education and health sectors substantially. Introduction of means-cum-merit
scholarship to address the problems of dropouts will help in arresting
the dropout ratio. Secondary education has been targeted which will help
not only in providing vocational training required for meeting skill requirements
of manufacturing sector but will also help in absorbing in buoyant services.
The availability of required manpower for services at reasonable wages
is a challenge before the services industry. Unless youth from semi urban
and rural areas move to bridge the gap, we The
emphasis given on tourism is in right direction, taking into account the
capital employment ratio in the sector. The UN World Tourism Organization
Report has noted the emergence of South Asia as a tourist destination
with remarkable growth of 10% in tourists arrival which is double the
normal growth. Further, it also highlighted that the growth in tourism
in South Asia was boosted by India, which is responsible for half the
arrival to the Sub-Region. The income tax exemption given to hotels in
NCR Region together with increased allocation for tourism infrastructure
will help meeting physical infrastructure required for this Indian textiles exports accounts for just 4.72% of global textiles and clothing exports. The textile vision 2010 envisages 12% annual growth in textiles industry which will help in creating 12 million additional jobs. The allocation for textiles park scheme has been increased from Rs. 189 crore to Rs. 425 crore. So far 26 Textiles Parks have been approved. More such parks will be operational in 2007-08 developing basic infrastructure for textiles exports. The textiles upgradation fund will continue during the Eleventh Plan Period as suggested by the Industry. The allocation for the TUF has been increased from Rs. 535 crore to Rs. 911 crore in 2007-08. The TUF scheme launched in 1999, enable the lenders to give an interest subsidy up to 5% for modernization and technological upgradation. The
government announced scheme for development of handloom clusters during
the last budget by covering 120 clusters under the scheme. 100-150 The other sector where India a world leader is gems and jewellery. The budget has added to the competitiveness of the industry by reducing duty cut and polished diamonds, rough synthetic stone, and unworked corals. These measures will help the gem and jewellery sectors to achieve required growth and open further employment opportunit. |
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B V Kumar, Former Member, CBEC FM lost another opportunity While the anticipated growth rate in the Manufacturing Sector is around 9.2% and the Services Sector is around 11.2%, the average growth rate in agriculture is only2.3%, which is an area of concern. The short supply of wheat, rice, pulses, edible oils and other essential commodities have put enormous pressure on the economy, and is mainly responsible for the high rate of inflation. While the Finance Minister has rightly stated that the Government's first priority would be agriculture and announced a number of long term schemes to create additional irrigation facilities, rain water harvesting, etc., no.short term measures have been announced to control supply constraints. He should have taken the opportunity to announce bold measures such as importing wheat, rice, pulses, edible oils and other essential commodities at 'nil' rates of duty, so that commodity hoarders would start dehoarding, resulting in a fall of prices. While it is laudable that allocations have been done in monetary terms for various projects meant for the development of agriculture, the rural poor and the economically weaker sections of the society,there are no physical targets. It is time to revive the 'Programme Evaluation Organization' , which wouldmonitor the actual implementation of the projects. The reduction of the peak rate of Customs duty from 12.5% to 10% and a further reduction in the effective rates on many goods would help in boosting production and infrastructure development. However, he has not done enough in bringing down the effective rates of Excise duty. The Finance Minister should have followed the 'Chinese Development Model' and this would have helped in boosting industrial production. The small sops he has given to the Small Scale Industries and the Services Sector are inadequate and would be neutralized with the increase in Education Cess. To that extent theBudgetary proposals remain inadequate and he lost one more opportunity. |
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Satish Reddy, Managing Director & COO, Dr Reddy's Laboratories From a pharmaceutical industry perspective, the Budget has again turned out to largely be a non-event. There is no doubt that the extension of the weighted average deduction of R&D expenditure, which is welcome, a marginal reduction in the customs duty of specified machinery and the exemption from service tax on certain clinical research are positives. But there is nothing in terms of bold moves that will change the trajectory of growth of the industry or decisively impact public health. The pharmaceutical industry is estimated to have revenues of Rs 55,000 crores and the Economic Survey has indicated that it could double in the next three years. Exports are in the region of 5 Billion dollars, or about 5% of India total exports. The issues that will potentially inhibit industry growth are fundamentally regressive price controls, modernization requirements of more than 15000 small and medium pharma enterprises and strengthening the institutions that provide trained manpower at all levels. I did not see anything in the budget that will positively impact any of these fundamental issues. The pharmaceutical industry will need to rely on its own initiative to meet the national priority of growing at over 25% every year in the next three years. Another important issue is that despite 9% plus growth for the past two years, there is a growing apprehension that the political and social fallout of this growth is not being inclusive. Public health has been acknowledged to be one of the important facets of inclusive growth along with employment, education and poverty alleviation. Increased allocations to the National Rural Health Mission and for safe drinking water and sanitation are welcome, but at best they sustain initiatives of the past. The Economic Survey itself acknowledges that these initiatives are limited by the appalling state of infrastructure and delivery and there is little in the budget by way of mention or allocation that suggest that there will be a decisive departure for the better. While Health is a State subject, it is clear that few States have the money to make a difference and the Finance minister has chosen not to make an effort to alter the status quo. The much-awaited National Urban Health Mission as well as the National Pharmaceutical Policy are also yet to be announced. |
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Dr.
Jaya Prakash Narayan, former IAS officer Great Opportunity squandered Mr. Chidambaram enjoyed great advantages while presenting this year’s budget. The growth rate is impressive, and by all accounts sustainable in the medium term. Revenue increase is the highest in recorded history. Fiscal deficits are at last being contained. Savings rate is almost one-third of GDP. And the government is politically stable. Considering these advantages, the FM seems to have squandered a priceless opportunity to set a new direction, and give concrete shape to the vision of inclusive growth. There are no serious errors of commission, but errors of omission are aplenty. True, there are no new taxes except the 1% additional surcharge on all taxes for secondary and higher education. Import duties have been slashed. The emphasis on agriculture is necessary and justified, but not matched in action. What are the errors of omission? First, the actions on agriculture are inadequate. Focus on seeds, more credit and replenishing ground water reserves and improving water harvesting is welcome. But there are other glaring areas which remain unaddressed. Most farmer suicides pertain to cotton growers. The unfair advantage to OECD farmers on account of high farm subsidies ought to be neutralized by increasing import tariff on cotton. The real challenge of agriculture is establishing market linkage and creating value addition to agricultural produce to enhance rural incomes. Credit cooperatives are still under stultifying government control, and over 60% of farmers have no recourse to institutional credit. Aggressive measures to restructure and liberate cooperatives along with cash support are necessary. The Budget failed to act on all these fronts. Second, the effort to improve ITI’s infrastructure is welcome. But there are millions of educated youngsters who lack skills and are unemployed. Despite high growth rate, employment in organized manufacturing sector remains stagnant. Even I.T. and other sectors are handicapped for want of skilled workers. A massive national programme for skill promotion is vital today. The FM failed to address this issue of employment and skill promotion. Third, FM did initiate a modest social security scheme for the unorganized poor. But it is too modest to make an impact. 92% of our work force is in unorganized sector. Out of the nearly 40 crore such workers, FM’s proposals touch only 15 million families, of which 7 million will get support this year. This is too anaemic an approach to make a serious impact on the plight of the unorganized workers. Fourth, while Education allocations have increased, and school enrolment has improved, outcomes are far from satisfactory. In healthcare, even allocations are paltry, still stubbornly remaining below 1% of GDP. And there is no effort to create new incentive mechanisms to guarantee quality healthcare to all. As a result, despite rhetoric on social sector, allocations are insufficient and outcomes are poor. The Budget failed to address these fundamental issues. In infrastructure sector, power and urban transport pose formidable challenges. Power sector net losses are about Rs. 26,000 cr. per year, and subsidies touch almost Rs. 40,000 crore. Distribution improvement with local participation is the key. The budget indicates that the government has thrown up its hands in despair in this vital sector. In urban transport, low cost, effective choices need to be incentivised and promoted. No such effort is discernible in the Budget speech. Handicrafts sector has been plagued by years of neglect and decay. Support to a few handloom clusters is welcome, but insufficient. A national programme of diagnostic survey of all handicraft clusters, and support by way of credit, technology, infrastructure, skills and marketing are critical. If revival of certain handicrafts is unlikely, then promotion of alternative skills and reemployment are necessary. The Budget does not explore these options. There is huge migration to big cities, and villages are getting depopulated. A concerted effort to promote in situ urbanization to provide amenities and services and encourage local migration through market incentives is necessary. The Budget simply ignores this mounting challenge of unchecked migration and rise of urban poverty. The real estate boom has further boosted the black economy. A comprehensive approach to provide house sites and housing to urban population, and promote open transactions to curb the menace of black money is needed. For instance, long term capital gains tax on land can be significantly reduced. The FM left this whole sector to realtors and land grabbers, allowing serious distortion of market prices and continued real estate bubble which could seriously undermine our economic gains. Finally, the Budget did not pay any attention to the economic aspects of governance challenges. A nation-wide land survey and digitization of records are needed; the police forces needed to be modernized to meet the growing challenges in a humane and effective way; the court system needs to be expanded and made accessible. All these need significant investments and incentives and support to states. The Budget ignored these sectors while making allocations. All in all, a great opportunity has been squandered. |
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L Vaidyanathan, editor, Employment & NRI Times
As
one goes through the union budget for 2007-08, the striking point is that
the budget has more or less given a clean burial to the much–taunted
Common Minimum Programme (CMP), the populist plank on which the UPA government
is bound together. Except for the rhetoric measures such as Rajiv Gandhi
Drinking Mission, Bharat Nirmal Programme, Sampoorna Gram Rozgar Yogna
and rural health mission ---for which sums are allotted but how much will
really reach the needy is anybody’s guess --- it is very difficult
to see any strains of CMP even if one goes through the budget speech with
a fine comb. Here again, these schemes are to be implemented with the
help of the state governments and with the participation of LIC. And again,
the so called crop insurance is nothing new but the grim reminder is that
it never took off. Despite the record tax collection, the deficit at 3.3 per cent of the GDP ( in rupee terms Rs 1,50,948 crore) seems to be high though manageable. The defence expenditure is again hiked though the government can justify this by pointing out external threats. Though no major changes are made in the income tax rate , the raising of the limit by Rs 10,000 will marginally help women and senior citizens whose threshold limits now stand at Rs 1.45 lakh and Rs 1.95 lakh respectively. There is no change in the corporate tax but dividend tax is raised to 15 per cent . In fact, there is nothing in this budget to cheer the stock market as such. But the slashing of customs duty to 10 per cent from 12.5 per cent and excise cut on cement by Rs 50 per tonne are welcome steps. While the former measure will trigger further spending by the 35-crore-strong middle class on consumer electronics and white goods, the latter step will to some extent prevent the runaway prices of cement . True, the exemption of service tax to small service providers is a welcome step but the extension of service tax to residential societies where monthly remittance is Rs 3000 per member is totally unwanted. Though Palaniappan Chidambaram’s sixth budget ( he was the FM in Deve Gowda ministry too) cannot be termed as a “ please-all budget” ( like Lalu’s the rail budget), it definitely does not harm anybody much. Budget proposals, it is said that, one has to grin and bear anyway. |
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| A. S. Sidhu, D.G. (CEI) (Retd.) Tax Regime has to be stable, moderate & conducive to economic growth. With these objectives in mind reduction of Custom Duty from 12.5% to 10% on Non-agriculture product, certain Plastic from 12.5% to 7.5%, Rough Diamond from 5% to 3% is a welcome change. Reduction of duty on Drip Irrigation systems will certainly help Agriculture as a large portion of Land under Agriculture is non-irrigated. Reduction of Excise duty from 8% to 6%, incase of Petroleum Products, benefits given to food processing industry and also increase of exemption limit to the small scale unit from 1 Crore to 1.5 Crore will ease out inflation and will provide more employment. Increase of Duty on Tobacco products such as cigarette, Biri, Pan Masala containing Tobacco has a social purpose as these products are Health Hazards. There is no change in the rate of Service Tax. Exemption Limit to the small scale service provider from 4 Lakhs to 8 Lakhs will provide them incentive to provide hassle free services. Exemption to Housing societies association providing certain services to the members/residents is overdue benefit, in fact, it should have been granted much earlier. It appears exemptions are still part of Tariff. Exemptions are double edged Weapon. Exemption leads to evasion. Therefore, measures are taken to plug loop-hole through added conditions and procedural safeguards. This leads to harassment and corruption, therefore, exemptions are ultimately at the cost of Revenue and their implementation leads to harassment. This area should have been touched. Increase of GDP to Tax ratio from 9.2% to 11.4% is a Happy News for the Nation. Increase of Budget Allocation to Agriculture, Education, Health, Drinking Water, Up-gradation of ITI, e-governance, emphasis on storage infrastructure, benefit to SC/ST will certainly in the long run will lead to excel-rated economic growth and distribution of Income to all section of society. Indirect Tax Revenue (Custom & C.Excise) in 1950-1951 was Rs. 255 Crore, where as Budget estimate for Rs. 2,30,566 Crores. There is enormous increase in Revenue over the Years. Complexities in the system has increased due to classification, valuations and procedure related to collection of Revenue. In the changed scenario, quality of decision making needs to be improved. Unfortunately, 80% of quasi-judicial decisions of Custom, C.Excise and Service Tax are set aside by Appellate authorities or Courts. As regard the speed, I may mention that provisional assessments are pending for more than 10 years in the Custom House, Mumbai. Certainly, situation of other Custom House and Central Excise Collectorate are not much better. Confidence of Senior Officers and their Authority has suffered over the Years mainly due to lack of support and complaint – mostly anonymous. Even administrative lapses are treated as Vigilance matter. There is no system to support and encourage Honest and Good Officers. As a result field is left open for corrupt and insincere people. Whatever the system we may have and also whatever policy decision we may take, most critical is its implementation. I am reminded of following lines of J P Lewis’s book namely Quiet Crises in India – “The Indians are better talkers than doers, better planners the executors. Their very erudition means that they already have heard everything-and tired very nearly everything, after a fashion. But too often the execution is half-hearted, inept, or bogged down in cross-purpose. As a result, there is a rapid deterioration of good policy ideas; they grow shabby before their time” |