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Budget Reactions 2011

Budget Reactions 2011

Ports: Mixed Bag

Healthy

  • Service tax exemption of 25 per cent from taxable value is being provided to services of transport of coastal goods and goods transported through national waterways or inland water with no CENVAT credit of taxes paid on inputs, input services and capital goods. The effective service tax rate is 7.725 per cent.
  • Infra development to be boosted with tax free bonds of Rs 30,000 crore to be issued by government undertakings including Rs 5,000 crore for ports.
  • Additional allocation for creation of warehousing facilities.
  • Exemption from payment of service tax under works contract service when such services are provided wholly within an airport or port.
  • Import duty on coal for cement industry reduced, ports handling coal can expect increased throughput.
  • Importers/exporters to self-assess duty liabilities and declare them through EDI to Customs authorities. This will speed up and modernise cargo clearance.

Not so great

  • Excise duty exemption on the following types of ships discontinued and 1 per cent excise duty introduced with no CENVAT credit of taxes paid on inputs and input services: Consequently, the following vessels would also attract additional customs duty at 1 per cent on imports: a) Cruise ships, excursion boats, ferry boats, cargo ships, barges and similar vessels for transport of persons or goods; b) Tugs and pusher crafts; c) Light vessels, fire floats, dredgers, floating cranes, etc; d) Other vessels including life boats, other than rowing boats.
  • Uniform 20 per cent export duty slapped on all types of iron ore is likely to adversely affect ports that mainly handle that cargo alone.
  • No service tax abatement on dredging.

SS Kulkarni, Secretary General, Indian Private Ports & Terminals Association

Shipping: Unimpactful

I do not find the budget very impactful for the shipping sector.

In the past, both aircraft and ships were exempted from this import duty, but now I understand that aircrafts continue to have that exemption but ships somehow do not. I cannot understand why ships are not exempt from this duty. We will take this up with the finance ministry immediately and are hopeful that this is more of an omission rather than any deliberate intention on part of the government to bring ships under import duty.

Shipping companies are required to set aside 20 per cent of our book profits towards acquisition of tonnage. Under the Tonnage Act, we have a period of eight years to plough back that money into acquisition of tonnage. But if we carry that substantial amount for that period, obviously we will earn interest and that interest is subjected to the corporate tax. Why does the government not permit that to be ring fenced under tonnage set income?

We are not sure what impact the export duty of 20 per cent on iron ore will have particularly on Chinese import of Indian iron ore. We also wish the reparation of dividend for subsidiary, that has been reduced from 33 per cent to 15 per cent, was made applicable to joint ventures as well.

Another item on our wish list is that sea farers are normally given special exemption in many countries, arising from the provision that they are mostly employed on foreign flag vessels. But the seafarers' tax continues in our country.
– S Hajara, Chairman, Shipping Corporation of India

T&L: Welcome warehousing boost

To his credit, the Finance Minister has not ignored the logistics sector, the backbone of the economy, and has set aside Rs 2,000 crore for warehousing, mainly in the area of agriculture. Augmentation of storage capacity through private enterprises and warehousing corporations has been fast tracked. Also, the Constitution Amendment Bill will be presented in the parliament which will change the way warehousing is today. We are hoping that GST will be implemented soon which will replace the cascading effect created by existing indirect taxes.
Providing cold storage chains an infrastructure status is a welcome move as it will help improve and add infrastructure in this area. The scope of exemptions to improve storage and warehouse specialty for agricultural produce has been further enlarged giving full exemption from excise duty on air-conditioning equipment and refrigeration panels for cold chain infrastructure has been extended and conveyor belts have been included in the full exemption from excise duty to equipment. The removal of duties on imports of spares for ship owners is also a welcome move for domestic shipping firms as repair costs will go down.
 However the government should have considered giving the logistics sector an infrastructure status on a whole.
-Vineet Agarwal, Executive Director, Transport Corporation of India (TCI)

Construction: INCREASED ALLOCATION AUGURS WELL

Budget for 2011-12 has been presented in a scenario when the nation is plagued with increasing inflation and current account deficit. This Budget is a balanced one with a special focus on inclusive growth. Fiscal Deficit is budgeted at 4.6 per cent of GDP from the current level of 5.1 per cent which is a major welcome sign.

As far as Infrastructure is concerned, the allocation stands at Rs 2.4 lakh crore, 23.5 per cent higher than the current fiscal. This augurs well for the engineering and construction companies in the infrastructure space. At the policy level, a Group of Ministers (GoM) is being constituted for re-visiting the statutes, etc, in the specific context of the clearances required for infrastructure and mining projects. This will further help developing PPP projects.

On the other hand, likely price increase in steel and cement would put some pressure on the margins of construction companies.

Overall it is a pragmatic budget with lot of positives for construction. It is more important to ensure that the allocation is spent efficiently and in time, preferably towards the beginning of the fiscal rather than pushing them to the end of the year.
– KV Rangaswami, Member of the Board & President (Construction), L&T.
 
Power

R-APRDP DOWNSCALE SURPRISING

There are several critical issues faced by the domestic electrical equipment manufacturing industry with regard to a level playing field vis-à-vis imports that have not been adequately addressed in the budget proposals. These include the service tax exemption demanded for the sector on lines given to other infrastructure segments, imposition of basic customs duty on import of equipment used for mega power projects, duty free import of CRGO electrical steel (a critical raw material for manufacturing transformers) till domestic production commences, etc.

We welcome the stability in central excise and service tax rates and the cut in corporate tax surcharge from 7.5 to 5 per cent; however, the increase in the rate of MAT from 18 per cent to 18.5 per cent is a dampener.

It is surprising that the Central Plan allocation for R-APDRP has been reduced from Rs 3,700 crore last year to Rs 2,034 crore this year. There has been no significant enhancement of allocation for the sector even though an efficient power supply system is the key ingredient for economic growth and quality of life.

Given the huge effort required in rural electrification, the hike in Central Plan allocation for Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) from Rs 5,500 crore to Rs 6,000 crore is far too low.

The entire power sector value chain crucially hinges on the financial viability of the distribution sector and reduction of aggregate technical and commercial (AT&C) losses, close to 30 per cent currently, is a national imperative. The Restructured Accelerated Power Development and Reforms Programme (R-APDRP), which is primarily focused on reduction of AT&C losses, should have been allotted more funds.
– Vimal Mahendru, President, Indian Electrical and Electronics Manufacturers Association (IEEMA)
 
Urban infra: PUSH FOR AFFORDABLE IS GOOD

Increased limit to Rs 15 lakh for 1 per cent subvention, increasing limit to Rs 25 lakh for priority lending for home loans are welcome. However, much more could be done to accelerate supply of affordable housing stocks. Also we register our displeasure over MAT in SEZs. The government should not deflect from declared policy of tax exemptions as this gives out a wrong signal to investors in such projects.

We expected the government to announce special schemes for affordable housing giving relief. We also expected relief and clarity through amendments for 80 Ib(housing) and 80 IA (IT parks).

The unfulfilled demand of more than 24 million houses in the country needs large scale impetus to achieve desired results. Allowing deduction for investment into affordable housing is a welcome step and will surely boost morale of housing industry and will accelerate investments in affordable housing.

Although we can see the government's desire to assist the real estate sector, we expected many dynamic ideas in this budget to achieve desired results. 
– Lalitkumar Jain, CMD, Kumar Urban Development and Vice president, CREDAI

RURAL INFRA: REPLACE NREGA
Increase in infra spending, increase in FII limit for infra bonds, permitting tax free bonds through Railways, NHAI and other steps is very positive for the infrastructure sector. Poor allocations for environment will make them continue as regulators and not benefit environment protection. Social schemes like NREGA being continued is a burden on the country and should be appropriately substituted with rural infrastructure. Fiscal deficit is a great improvement despite being a misnomer as we are comparing the budget with GDP. While the bold step of nutrient based subsidy is encouraging and will help compost, substantial delay in implementation is a concern.
– Goutham Reddy, Executive Director, Ramky Group

Steel: IRON DUTY MAY BE POSITIVE

For the steel sector, the union budget is positive considering our expectations. The physical infrastructure spending allocation of Rs 214,000 billion will boost the demand for steel products. In addition, the hike in iron ore export duty to 20 per cent is expected to increase the availability of the ore to the domestic steel industry and also preserve this precious natural resource. However, whether this actually discourages and lowers exports, or only dents the margins of Indian iron ore exporters, needs to be seen.

Ferro-alloys are important and necessary inputs for steel making. The decision to reduce basic customs duty of ferro-alloys from 5 per cent to 2.5 percent will help reduce the input cost for the steel industry to some extent, benefiting the industry as well as its customers.
The budget provides high focus on infrastructure development, with further supports from fiscal policy measures to open up more avenues for infrastructural funding. With this the domestic steel industry is expected to grow at a CAGR of 10 per cent in the next five years against the average annual growth of 8 per cent achieved between 1991-2010. Going forward we expect steel prices to remain mostly firm on account of strong demand lead by domestic markets coupled with recovering global economies.

The budget has kept the excise duty on automobiles unchanged, as against the industry expectation of possible hike. In addition tax sops given for hybrid and electric vehicles are in the right direction, and are appreciated by the automobile sector. Steel demand looks strong due to the positive outlook of the automobile industry.

The excise duty on steel is left unchanged. Trusting the Government's intent to implement the Direct Tax Code enactment from April 2012 and with the mostly positive outlook of the steel industry over the next year, we do not see anything unbalancing about no change in the excise duty.

– Vinod Garg, Executive Director (Commercial), Ispat Industries

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