Bitter pill on excise duty sweetened by income-tax relief

The Financial Express
17 March 2012

This year, the finance minister had an unenviable task. After a year of slowing growth and slippages in deficit targets, and amid continued global uncertainties, he has had to balance between the considerations of reviving growth, charting out a return to the path of fiscal consolidation and maintaining the sustainability of the government’s inclusive agenda. Against this difficult backd;rop, it must be said that the FM has presented a well-balanced and pragmatic Budget.

The government’s initiatives on the use of technology to improve the delivery of subsidies and to improve the outcomes of government programmes being taken to their logical conclusion, is indeed encouraging. The pilots on delivering subsidies using the Aadhar platform have yielded encouraging results. In the next 2-3 years, these initiatives will help in ensuring targeted, leakage-free subsidies and better outcomes of various welfare initiatives.

There are many positives in the Budget for the infrastructure sector: Doubling of the tax-free bonds for financing infrastructure projects, reduction in withholding tax on interest on ECBs for infrastructure sectors, extension of the tax exemption for power sector units by one year, and so on. These steps should improve the investor sentiment in these sectors. The FM has tried to address the need to kick-start investments in the manufacturing sector through certain duty reductions on capital equipment. Exemption from customs duty on energy inputs like coal and natural gas are also welcome, since the Indian industry has been facing incessant cost pressures on these inputs.

The FM has raised the general rate of excise duty from 10% to 12%. Though this may hurt some industries and have an inflationary impact, one must appreciate that this step is taken against the need for fiscal consolidation and is, in a sense, a part of the withdrawal of the stimulus that was provided during the global economic crisis.

The bitter medicine on the excise front has been somewhat sweetened by the relief given on personal taxation. The move on service tax towards a negative-list is important for long-term buoyancy of this source of revenue. The additional revenue targeted through the indirect taxes will probably play a significant role in achieving a reduction in fiscal deficit from 5.9% of GDP this year to 5.1% next year.

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• Mr. Kumar Mangalam Birla on the Indian Union Budget 2012-13