Pre Budget - Cut excise duties to boost manufacturing

Concerned over the slump in industrial production and to maintain inflation around 4 per cent, the government is likely to provide relief to the manufacturing sector by marginally cutting excise duty rates or sector-specific duties in the budget 2008-09.

Finance Minister P Chidambaram may announce cut in excise duty rates across the board from 16 per cent to 14 per cent or sector-specific duty cuts in the budget to be presented on February 29, official sources said.

Sectors like pharmaceutical, textile machinery, food processing, paper and auto including two wheelers, tyres are expected to get relief in excise duty, but like last year Chidambaram could also prune excise duty exemptions to maintain revenue collections, sources said.

According to Finance Ministry, due to various excise duty exemptions the estimated revenue foregone touched Rs 99,690 crore in 2006-07 as against Rs 66,760 crore in the previous year. It includes area-specific tax exemptions of Rs 7,000 crore in 2006-07.

With the approval of over 400 special economic zones, the revenue-foregone figures could be much higher for 2007-08, although some tax exemptions were withdrawn in the last budget.

Finance Minister had earlier said that tax exemptions would have to go in a phased manner. While commenting on the fall in industrial production till November, he indicated that the government could take steps to boost consumption and investment to sustain the GDP growth close to 9 per cent.

The growth rate for manufacturing sector declined to 9.6 per cent in the first nine months till December for 2007-08 from 12.2 per cent in the previous fiscal.

Prime Ministers economic advisory council chairman C Rangarajan has also favoured cut in excise duty especially on consumer durables to spur economic growth. The government expects that manufacturers might pass on cut in duties to consumers, thus dampening inflation.

Sources said there is a strong likelihood that the oil sector may also get a relief of at least re one a liter in excise duty on petrol and diesel besides downward revision of customs duty to compensate oil marketing companies selling subsidised oil products.

The government is also worried about the impact of fall in growth in high-employment sectors like textile and food processing.

Sources said the textile sector, which is estimated to order Rs 1,00,000 crore-worth machinery over the next 5 years, might also get a relief in excise duties especially on machinery.

Some sectors like packaged drinking water, which attract 16 per cent excise duty are also expecting downward revision of central levy to eight per cent.

Meanwhile, industrial chambers like FICCI have asked the Finance Minister to bring down excise duty rate of 16 per cent to 12 per cent in two years as part of its commitment to implement Goods and Services Tax (GST) with effect from April 1, 2010.