labels: economy - general, governance, union budget 2004
Pies in the sky… news
05 July 2004

On the eve of the annual budget 2004-05, Rajiv Singh looks at the expectations that the various sectors of the Indian economy have from the upcoming budget.

Inevitably, the first report card on any budget is delivered by the stock market, and it is with a certain compulsiveness that the entire country, including the powers that be in government, scan the ticker tape as it scrolls across TV and computer screens. So maybe it would be best if we began to look at the expectations of the various sectors of the Indian economy and the stock market itself and see how they are poised on the eve of the budget session of parliament.

After having shown a resentful face to the UPA''s rural focus, and looking at it as nothing more than regressive ''left-oriented'' politics, the markets suddenly seem to be displaying a newfound maturity in their appreciation of the UPA''s rural argument.

For, after three consecutive weeks of incessant hammering, the markets turned positive all of last week. The gains were across the board and were also marked by improved volumes. Possibly the most heartening feature of last week''s gains was the huge turnovers in several mid-cap stocks, an indicator of a revived and healthy interest in the economy, compared with idle technical game playing with the benchmark indexes and pet scrips.

That a revitalised agricultural sector may provide a vital boost for industrial growth in the country is a realisation that seems to have dawned on market pundits just in time before the benches in the Lok Sabha fill up for the finance minister''s speech. Of course, a desperately ''hindutva''-seeking BJP may be more interested in reinstating some inveterate old RSSers to their governorships than listen to proposals for a ''Shining Dehati India'', and so there may be some irritating diversions before the actual presentation of the budget.

So, it is appropriate that we should turn our attention to the expectations that the FM will need to address as he faces the opposition benches and, through the TV cameras, the nation at large.

Railways: Traditionally first off the mark, this year there is even more to look forward to with star attraction Laloo Prasad Yadav as the minister in charge. Further attractions — being ''tainted'', being very good at histrionics, being very good at playing the ''dehati,'' not being very careful about the usage of public funds and not inclined to tax the ''aam admi'' if the government of India can be persuaded to foot the bill.

Expectations: Aam admi will not pay for anything and the babus at the ministry can try looking for all their funding requirements wherever luck and circumstance (and energetic guidance from the PM and the FM from the sidelines) take them.

Requirements: Heavy resource generation required for safety and expansion plans to which the ministry has already committed itself. With no raising of lower class fares and commercial use of ''railway land'' being objected to by state governments, '' dialog baazi'' may be the only resource available to the ministry for the time being.

India Inc.: Is generally all about ''abolition'' and ''allowances''. The benefits from both tend to flow in only one direction — towards business. Any benefit accruing to the national exchequer, and the ordinary citizen, is of course to be looked forward to, but is generally confined to assurances.

Expectations:

  • Reduce corporate tax rate from the existing 35 per cent to 30 per cent and also remove the surcharge of 2.5 per cent.
  • Withdraw dividend distribution tax.
  • Abolish minimum alternative tax (MAT) for all companies.
  • Introduce investment allowance, plus additional depreciation of 15 per cent for increasing capacity by 10 per cent or more.
  • The import duty on raw materials and intermediates should be at least five per cent lower than that on the finished products.
  • Tariff lines must be rationalised into a three-tier structure during 2005-06 at five per cent, 10 per cent and 15 per cent.
  • Companies must be allowed to modvat the various service taxes - to be done in two-ways — service tax credit against excise, and excise credit against service taxes.
  • Reduce Central Sales Tax (CST) to two per cent and remove special excise duty of eight per cent on select goods (tyres, aerated soft drinks, polyester filament yarn, air-conditioners and certain categories of motor vehicles).
  • Withdraw the national calamity contingent duty in the Budget.
  • Implement the Kelkar Committee recommendation of a 14-per cent general rate of excise duty.
  • Present rate of 8 per cent service tax levy should be reduced to 4 per cent.
  • Exporters should be allowed to get 100 per cent tax exemption on their earnings.
  • Do away with the concept of special excise duty (SED).
  • Rationalise taxation on dividend received from a foreign subsidiary to promote India as a favourable investment destination. Dividend paid by a foreign company to an Indian company suffers double taxation.

Sectors

  • Domestic electrical industry - Suffers because of inverted duty structure regime making imports of finished goods more attractive. Urges establishment of a value-added tax (VAT) regime with single tax rate.
  • Withdrawal of 10 per cent import duty on equipment imported for transmission and distribution projects.
  • Engineering - Exempt key raw materials required by the engineering industries from customs duty so as to ensure their availability and insulate them from price fluctuation.
  • Hosiery producers - Reverse the amendments to the CST Act relating to Section 8 that deals with inter-state sale of hosiery products.
  • Shift hosiery goods from the list of items coming under category-II goods of the uniform sales tax formula to category-I listed goods, which are exempt from tax.
  • Scrap Cenvat duty on hosiery goods.
  • Telecom industry- Companies offering broadband services should be exempt from income tax for a period of 10 years in line with the policy being followed for other infrastructure facilities.
  • All the plant machinery, equipment, software and stores imported for the purpose of providing broadband services should be exempt from paying customs duty.
  • Reduction of duties on fixed wireless terminals to 5 per cent in order to bring them at par with that levied on mobile handsets.
  • Automobile manufacturers - Cut in excise duty on cars and utility vehicles from the current 24 per cent to 16 per cent.
  • Customs duty on CKD (completely knocked down) vehicles should be brought down from 25 per cent to 20 per cent.
  • A reduction in customs duty on import of moulds, dies, checking fixtures, injection moulds and welding jigs from the current 25 per cent to 20 per cent.
  • The customs duty on key raw materials such as CR steel, HR steel, alloy steel, etc., reduced from the current 25 per cent to 10 per cent.
  • Steel - An across-the-board reduction in import duty on all raw materials used for making steel.
  • Allow the integrated steel plants to pay excise duty at the factory gate price and not stockyard price
  • Software - Complete exemption from excise and customs duties on computers.
  • Second - hand usable computers discarded from the developed countries should be permitted to be freely imported into India on duty-free basis, provided they are given on free-of-cost basis to educational institutions.
  • Mutual funds - Asking for a plan similar to the 401K option in the US. Under this system, salaried workforce contribute a part of their income to the 401K plan; tax breaks are available for contributions up to certain set standards and employers can also choose to match this contribution. These funds are then invested in various mutual funds and add up to the retirement kitty.
  • Broadcasters - Exempt the broadcasting industry from service tax and bring it at par with the print media.
  • Exemption of customs duty on set-top boxes (STBs) for at least another three years.
  • In order to encourage indigenous production of STBs, it has sought an exemption of excise duty on STBs.
  • Music industry - Under the VAT regime, music cassettes and audio CDs should be reclassified from electrical / electronic machinery to publishing as music is an intellectual property.
  • Excise duty exemption on recorded audio CDs announced in Budget 2003-04 should be retained as the industry continues to suffer losses.
  • Cotton mills - Refrain from expanding the coverage of excise exemptions to more segments of the textile industry.
  • All textile segments should have a uniform basic excise duty of 8 per cent. In the case of RFY / POY / texturised yarn, recommend excise duty of 16 per cent for 2004-05, as against 24 per cent now.
  • Soft drinks - The only food and beverage product to attract 8 per cent Special Excise Duty, Coca-Cola and Pepsi have said that unless this levy is waived, lowered prices may no longer be sustainable.
  • Real estate - To provide hassle-free and cheap loans to people who are below the Rs 6,000-monthly income bracket.
  • To extend the time limit for Section 80IB(10), which provides tax incentives for housing loans, from March 2005 to March 2010.
  • Power sector - The union government issued power sector bonds aimed at those interested in converting black money into mainstream investments.
  • Water management - Those planning to have O&M contracts for water management should also get Section 80 (IA) and 80 (IB) benefits.


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