labels: union budget 2007
Industry reactsnews
28 February 2007

Ajay G Piramal, chairman, Nicholas Piramal India Limited
The most redeeming feature of the Budget is keeping the fiscal deficit of 2007-08 well below the FRBM target at 3.3 per cent. The proposal also contains some novel thinking such as Reverse Mortgage Scheme to be implemented by the National Housing Bank, companies allowed to issue exchangeable bonds for unlocking group company shares, etc.

The finance minister needs to be complimented for having reversed the sunset clause already built in the statute in respect of weighted deduction on R&D. Against all fears that the tax holiday benefits in respect of industrial units set up in backward regions maybe withdrawn, it is heartening to note that such benefits in respect of J&K have been extended for five more years.

To tax the Venture Capital Funds by taking away the Pass-Through Benefit in respect of non-specified areas will bring about additional burden on the consumers and will not encourage Venture Capital Funds thereby starving the mall entrepreneurs of seed capital. The biggest challenge faced today by corporate in India is attrition of employees and ESOP has proved to be time tested tool for retaining the employees. Bringing this under FBT is deplorable. Increase in the tax rate of distribution of dividend and education cess could have been avoided.

Extending service tax for lease / license of immovable properties meant for commercial purpose will be inflationary and is not in the right direction.

Dr Swati Piramal, director, Nicholas Piramal India Limitied
Budget 2007-2008 is a good year for the pharma sector. Weighted deduction under section 35 (2A,B) for 150 per cent is continued for next five years for approved in-house R&D facilities of industries in the Bio Pharma sector.

This is a very positive development for increasing investment the India''s knowledge economy. Reducing service tax on clinical trials, clarification of FPT on free samples, encouragement of venture capital, funding in biotechnology and NCE research are very positive steps.

Increased allocation in the healthcare has been a long awaited move. Increased spending on TB, Malaria, HIV and vaccines is also important news.

Gautam Vir, MD and CEO, Development Credit Bank
The finance minister had a clearly tough task on hand as he walked into the budget session - two states election results going against the government, inflation and finally a meltdown in the global stock markets.

His biggest moves on inflation include a reduction in the excise duties on crude items, which will help reduce the government indirect deficit, as well as open up space to reduce oil prices further. His other moves include a reduction in peak customs duties from 12.50 per cent to 10 per cent, with sharp reductions in some select areas.

Also the excise duties in areas like cement have been tweaked in such a way that there is an incentive for companies to reduce cement prices. On the other hand, there is a clear appreciation that the inflation is a supply side issue, and a number of measures towards improving farm output have been set out. There is a clear stress on fertilisers, seeds and irrigation, which would go to boost farm output.

The banking sector had a mixed bag of fortune. There were large hopes that the tax relief for bank deposit interest would be increased to help banks garner more deposits. Instead of that, there has been an increase in the dividend distribution tax on money market mutual funds.

Also, there were no significant measures announced to increase the market liquidity to fund the expected sharp growth in the economy. This was a bit surprising as the economy is expected to continue to grow at 9 per cent this fiscal too, and the market is short liquidity.

Also there were no special measures for funding infrastructure, which was also an expectation from the banking industry. On the other hand, despite large allocations for agricultural sector and other schemes, the government deficit is well under control and targeted at 3.3 per cent of the GDP.

Overall it is good budget, balancing growth needs with inflation control measures, which also continues the reforms in terms of customs and excise duties rationalization.

Deepak Puri, chairman and managing director, Moser Baer India
The Budget has been very positive on agriculture and the government must give incentives to ensure that corporates get into this sector and set a chain reaction in notion to improve the infrastructure including logistics and supply chain.

KJ Rao, chief financial officer, CEAT Limited
This is predominantly an agriculture-oriented budget; the finance minister spoke for almost 45 minutes on agriculture and related schemes. This is because agriculture sector has posted a poor growth at 2.3 per cent against expected growth of at least 4 per cent.

We hope that the additional levy of 1 per cent education cess to fund primary education will be cenvatable so that the cost impact on inputs gets neutralised.

The differential levy of excise duty on cement companies is unlikely to result in reduction in price of cement in retail market. This would escalate cost of construction. However, the reduction of CST from 4 per cent to 3 per cent will have a positive impact on inputs to the manufacturing sector.

Sunil Gupta, director, Gupta Synthetics Limited
The Union Budget is lacklustre and has no special benefits for the synthetic yarn industry - in fact, several demands of the industry have been ignored.

The Budget has effected duty cuts on important raw materials like PTA and polyester fibres to 7.5 per cent, from the earlier level of 10 per cent, so this is a positive. However, the excise duty on monoethylene glycol and caprolactum still remain at 12.5 per cent. We expected the Minister to address this anomaly, but this has not happened. There is also a natural calamity tax of 2 per cent, which still remains.

Anirudh Bhuwalka, MD and CEO, Asia MotorWorks Limited
It was encouraging to hear that VAT will be effectively implemented. With the FM initiating the process of phasing out Central Sales Tax (CST) with reduction in the CST rate from 4 per cent to 3 per cent, wef from April 01, 2007 will definitely mark the beginning of the process of a very significant tax reform measure, which is critical for success of VAT. The automotive industry suffers on account of cascading effect of taxes and multiplicity of taxes at various levels, this process will naturally give a boost to developing a national common market.

Anil Agrawal, director, Sanwaria Agro Oils Limited
The finance minister has stressed that agriculture sector is the main focus of the government and this is very promising for us. A very good thing is that the government did not levy excise duty on edible oils, as was expected in some quarters. Import duty on food processing machinery has also been reduced. With the service tax also not increased, and zero excise duty on bio diesel, this is a good budget for us.

However, the government has removed 4 per cent counter veiling duty on edible oils, that used to protect domestic suppliers from international competition, and no special measures for export have been announced either. The surcharge continues at 10 per cent, and the education cess has also gone up by 1 per cent. With the increase of the dividend distribution tax, this is a disincentive for us."

Ninad Karpe, MD, CA India and SAARC
Budget 2007-08 is more focused towards agriculture, healthcare and education however it has given e-governance its due diligence. The central government''s support of additional Rs200 crore for governing processes gives a boost to e-governance initiatives across the country.

This spend will improve services for the citizens and create a ripple effect in the domestic IT industry and may lead to mushrooming of the domestic IT spend. The proposed Rs33 crore for a new scheme of manpower development for the software export industry is a definite positive for the IT services industry.

Ashank Desai, non-executive chairman, Mastek
For the IT sector, the Budget has come as a mixed bag. The increase in allocation for e-governance is a commendable measure and should result in benefits for both the sector and the nation as a whole in the longer term.

At the same time, we believe that extension of MAT to companies that had earlier been promised 10A and 10B exemptions is likely to have an adverse impact on certain players.

In addition to that, the inclusion of ESOPs under FBT will add to the challenges being faced by employers in knowledge-intensive industries in attracting and retaining world-class talent.

Rajeev Piramal, executive vice chairman, Peninsula Land Ltd
The budget this year has the increasing feel of a non-event, which is positive to some extent. There is a feeling of continuity and nothing particularly stands out as a significant or key development. While on the other hand the initiatives in both agriculture and education should bear fruit in the long run.

In the real estate sector, there is not much of note and the best news is probably that things have been left unchanged by and large, although the inclusion of properties rented out for commercial purposes into the service tax net is not particularly welcome.

The differential rate of excise duty on cement may discourage the prices from going higher but the true impact will become clearer only after some time. From a company perspective the increase in dividend distribution tax and the FBT on ESOPs was surprising.

Sarju Singh, chairman D1 Oils India
This budget is a big boost to the bio diesel industry and will help the industry grow faster. The bio diesel industry will benefit from the excise duty exemption.

O P Singh, CEO, Venkateshwara Hatcheries Group
We welcome the budget bringing in more agri-focus spending and the benefit of Venture Capital funding to poultry. We are also happy with the government''s decision to ban forward trading in wheat and rice, however we would have also liked to see the government to ban forward trading in maize - the most crucial ingredient of poultry feed - due to which the poultry industry suffers significant losses.

K Raghavendra Rao, MD, Orchid Pharmaceuticals
It is a budget with a strong emphasis on agriculture, education, healthcare and infrastructure. For the Pharma industry in particular, the exemption of clinical trials from the service tax, concessional rate of 5 per cent customs duty for R&D institutions registered with the Directorate of Scientific and Industrial Research, and reduction in customs duty for specified machinery for the pharmaceutical and biotech sectors are welcome steps.

The extension of weighted deduction on R&D expenditure for a further period of five years is also welcome. The pass-through status granted for venture capital funds in respect of investments in undertakings in biotech and R&D of New Chemical Entities (NCEs) also indicates that the government sees these as sunrise sectors. The expenditure of FBT on free samples and displays will prove to be beneficial for the pharma industry.

Milind Barve, MD, HDFC Mutual Fund
With respect to the Mutual Fund industry we are pleased with the proposal to permit MFs to launch and operate dedicated infrastructure funds and with the proposal to permit individuals to invest in overseas securities through Indian mutual funds.

Overall, the budget has maintained continuity of policy in key areas, however its attempt to tackle higher inflation seems rather haphazard. On the positive side, it has tried to adhere to revenue and fiscal deficit targets, moderate tax structures and attempted to provide an enabling environment for achieving and maintaining a higher growth rate.

Raju Vegesna, Chairman & CEO, Sify Limited
The focus on central and state e-governance programmes will benefit everyone with better governance that is transparent, efficient and citizen friendly. It is a little disappointing to see that, despite the need to ensure more citizens have access to the internet to participate in e-governance, cyber cafes and internet access services have not been made exempt from service tax. Such a measure would have given a boost to the government''s efforts to rapidly increase internet penetration and use, as well as contribute to the success of the e-governance services being rolled out.

The measures to encourage small-scale industries, as well as venture capital funds being given a pass through status are also welcome steps towards ensuring continued high growth of the economy.

RC Mansukhani, chairman, Man Industries (I) Limited
Since the gas pipeline industry has been given the infrastructure status in this budget, it is now very beneficial for the pipe industry to grow with more pace. The exemption of duty for the water pipes of diameter exceeding 200 mm, will bring an all round growth to this sector and boost the industry.

Lalit Lahoty, director, Rapidigm – A Fujitsu Consulting Company.
The annual budget has left the IT Sector high and dry.

The proposal Increase in Dividend Distribution Tax (DDT): DDT has been raised from 12.5 per cent to 15 per cent is damaging for the Indian IT sector that is already loosing foreign direct investments

Service tax has now been levied on commercial rent. The proposal is very damaging for IT sector as bulk of software companies operate from leased premises.

Anthony Jacob, managing director, Royal Sundaram Alliance
We are pleased that the government has taken into cognizance the need to increase the ceiling for tax benefits under Sec 80D for health insurance from the current Rs10,000 premium to Rs15,000 and Rs20,000 for senior citizens. This will encourage more people to buy health insurance, safeguarding their future in times of need and also improve market penetration.

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