Industry reacts: Some +ve, some -ve

Gautam Hari Singhania, chairman & managing director, Raymond, said: The Union Budget 2007 - 2008 has strived to continue the reform process so that overall growth can be sustained. The increased allocation to agriculture in terms of rural infrastructure will spur agriculture to move beyond its present unsatisfactory growth rate of 2.3% to the targeted 4 %, in turn improving the lives of the people dependent on this sector.

"A very welcome note in this budget is the greater focus on the soft infrastructure – education and training, health so very critical to our country if it has to continue on its high path of growth.

"For the textile industry, the budget has been generally positive. The TUF scheme has been extended till the end of the 11th plan period. Allocation under the TUF scheme for the next year has been increased which should expedite the release of the subsidy. Peak rates of the duty have been cut & import duties on polyester have been reduced. Increased allocation to textile integrated parks is very welcome as it will boost the set up of additional capacities to cater to the growing domestic market and export.

"The extension of service tax to cover rental of commercial properties is unwelcome as it will increase the cost of operations of the retail sector.

"Overall the budget continues with the financial prudence mandate and attempts to keep price stability.

Deepak Ghaisas, CEO – India Operations and CFO, i-flex solutions

The budget from long term perspective provides positive incentives to increase investment in the educations system - both in secondary and higher education. That is a vital requirement for the IT industry in the coming years as the shortage of talent is a major constraint. However, there have been no major signals on upgrading infrastructure especially as we need large investments in infrastructure. Some estimates put the requirements at over $100 billion and the IT industry need infrastructure if it is to continue to grow.

The planned expansion of expenditure on E Governance is a good signal for the IT industry. It will serve to expand the domestic market and IT companies will see government spending coming their way which is a good thing. However from short term perspective I believe the budget provides debits and no credit.

The IT industry had some expectations – I don’t think the finance minister has taken them in to account and if he has introduced any measures that affect the IT industry the impact of the these measures is negative. One of the hopes was the government would consider extension the Software Technology Park scheme and Section 10A of the Income Tax Act beyond 2009. This would be especially important for IT SME sector.

Most IT industries are already paying tax but the MAT imposition on the IT industry would negatively impact those of SME enterprises who are not paying any tax.

The imposition of fringe benefit tax on ESOPs is most surprising. This will make current ESOPs expensive and would also make it difficult for IT industry that uses ESOP as a major tool to attract talent.

There has been no further clarification of the SEZ scheme and this will continue to keep many IT companies from finalizing their capital expenditure plans.

Though there has been mention of public-private partnership to expand education there the budget does not provide any clarity on how exactly this is going to work.

Commenting on the Union Budget, Ashank Desai, Non-Executive Chairman, Mastek; said: “With regard to the IT sector, the Budget has come as a mixed bag. The increase in allocation for e-governance measures 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.”

Sheshagiri Rao, director (finance), JSW Steel, said: “The budget is more biased towards controlling inflation rather than stimulating growth. The reduction in excise duties for certain products used for infrastructure building, would not only reduce the inflation but also increase the demand quite substantially while simultaneously increasing the revenues to the Government due to higher volumes.

The thrust on social sectors by increased allocations on education, health and employment is a positive step for inclusive growth.”

Steel Industry: “The steel industry was expecting that the Government would take certain steps to stimulate demand by reducing excise duty user specific, particularly infrastructure, white goods and automobiles but no step have been taken in this direction. However, imposition of export duty on ore / ore concentrated exports is expected to higher availability. These critical raw materials at better prices to domestic steel producers.”

Concern: “The reduction of customs duties on import of secondary steel products which may result in opening of floodgates for entry of inferior quality steel products into the country. This provision is likely to be abused by importing prime quality steel products also.”

Madhur Bajaj, president, SIAM said that the Finance Minister presented a budget that sought to continue the growth momentum in the economy, but added that the auto industry had hoped for some more concrete steps in respect of the sector which have not been announced this year.

The budget focused on Agriculture, infrastructure and social sector, all of which will have positive impact on the economy. The proposals in the agriculture sector if implemented correctly would increase overall growth”. Mr. Bajaj said.

The positive features of the budget in respect to the auto sector according to Mr. Bajaj were the reduction of CST from 4% to 3%, the continuation of the weighted deduction of R&D expenditure under Income Tax Act for the automobile sector for the next 5 years, and the retention of current customs duty structure on cars and two wheelers was a welcome step and would encourage local value addition in the domestic economy and generate employment.

The other positives in the budget were the increase in spending on roads both national highways and rural roads. The increase in outlay for the Urban Renewal Mission and its focus on transport would help increase public transportation in the country according to Mr. Bajaj. The increase in funds for ITI’s and the introduction of a PPP model would also help in the long term, Mr. Bajaj added.

“However, reduction of customs duty on commercial vehicles from 12.5% to 10% is going to affect the industry negatively, specially as this applies to used commercial vehicles also” Mr. Bajaj said. “This would open up imports from low cost economies”. The additional education cess of 1% and the service tax on design services would have a negative impact on prices, he added. Also, some companies are likely to be adversely affected by Dividend Distribution Tax.

SIAM president said that industry was hoping that the high incidence of excise duty on cars and utility vehicles would be addressed in this budget. Moreover, utility vehicles are the only means of transportation for semi urban and rural people where public transport network has not developed.

Currently cars and utility vehicles, other than small cars attract 24% excise duty, which is one of the highest in the country. SIAM has been requesting for an across the borad reduction in excise duty for cars and MUVs to 16%. SIAM hopes that this would be corrected soon.

For enhancing road safety and addressing pollution, SIAM had suggested a programme to modernize vehicle fleet. SIAM hoped that the Government would soon come out with a suitable policy in this regard and this would be looked at by the committee on green house gases. Also, the recommendations outlined in the Automotive Mission Plan 2006-2016 should be taken up.

Madhavan Menon, MD, Thomas Cook India, said: Increase in allocation to development of tourism infrastructure from Rs.423cr to Rs.520cr is a good sign but the amount is inadequate given the constraints faced by the tourism infrastructure in the country. There was no mention about airports/ports development which is disappointing as these would be key to tourism promotion in the country. The five year tax holiday for development of different category hotels & convention centers in the NCR region is a welcome move as it will help meet the increasing demand of rooms for the Commonwealth Games especially in the economy category. VC participation in development of hotels & convention centers would also help meet the room shortage in hospitality industry."

Cellular Operators Association of India (COAI) Director General TV Ramachandran said: "The proposal to constitute a committee to study levy structure in telecom is a step in the right direction and it will help the industry in the long-term. Otherwise, the industry was left untouched, which is a cause of concern and disappointment. The industry was accepting a reduction in the license fee structure, however the FM did not make any indication in this regard.” " Glenn Saldanha, CEO & MD, Glenmark Pharmaceuticals: "Given that the pharma industry is one of the growth sectors for the Indian economy and that India is now respecting IPR which would create challenges for Indian companies in the future, we were hoping there would be significant incentives to stimulate Indian R&D. However while we expected more, we are glad that the R&D 150% tax incentive will continue for an additional five years."

Kapil Wadhawan, MD & Chairman, DHFL: "Creation of mortgage guarantee companies will improve alternative resources to housing finance companies at a lower cost, which will improve profitability of housing finance companies and will provide greater comfort to the lenders

"Introduction of reverse mortgage by National Housing Bank is positive for DHFL as we were the first to initiate this product and are ready with procedural aspects.

"Emphasis on Bharat Nirman Yojna and the 31% increase in the fund allocation to this scheme will generate employment in rural areas which will increase income levels of working people in these areas and increase the potential demand for housing finance."