The government has begun identifying sectors that need tax breaks in the full Budget for 2009-10. Revenue secretary PV Bhide said on Friday that the Budget would address specific demands for duty changes in sectors such as paper, chemicals and textiles. The value added from these industries to the entire manufacturing sector is around 32%, according to the latest national accounts statistics.
Bhide was speaking to industry leaders at CII?s national conference & annual general meeting in New Delhi on Friday. ?Some sectors like the paper industry, chemicals and textile intermediaries have sought duty changes. We will work on that in the main Budget for 2009-10,? said the revenue secretary, who leads the team of government officials that will work with the new finance minister on tax policy for Budget 2009-10.
Bhide?s comments, along with those of economic affairs secretary Ashok Chawla, were clearly aimed at reassuring corporate India that the Centre would continue to provide substantial fiscal and monetary stimulus in 2009-10. ?The government and RBI will continue to take measures to revive growth,? Chawla promised.
?The silver lining is that Asia is still growing, and within Asia, China and India are keeping the flag high. The gap between China and India?s growth rate is also narrowing. The full roadmap to turn this crisis into an opportunity will come up very quickly after formation of the new government,? Chawla said.
While leaving key tax rates unchanged in the interim Budget presented on February 16, finance minister Pranab Mukherjee responded to industry demands and announced a 2% cut in Cenvat and service tax rates, along with a few sector specific sops?including customs duty exemption to cotton textiles and duty revisions for steel and cement?a week later.
But companies?especially in sectors like real estate, textiles, cement and steel?have sought more fiscal measures to tide over the twin problems of a slump in demand and falling prices. The textile industry has sought an increase in duty drawback rates for all apparel items to 14%, excise duty reduction for leather from 8% to 6% and withdrawal of the 5% duty incentive on cotton exports.
Faced with a drastic decline in crude oil prices and a slump in demand, the chemical industry has been lobbying for a revision in customs and excise duties on inputs. The department of chemicals & petrochemicals has also sought a 5% import duty exemption on naphtha, used in making chemical compounds, and a cut in excise duty on monoethyl glycol from 8% to 4%. To maintain growth, the paper industry has recommended the imposition of an anti-dumping duty in compliance with WTO norms.
The revenue secretary, however, cautioned about a ?disheartening trend on the customs side?. ?The space left for fiscal correction is now minimal,? Bhide warned. With the three rounds of fiscal stimulus, the exchequer has lost heavily on tax receipts and the government now expects to only nominally exceed in 2008-09 the tax collected in the previous fiscal.
Earlier in the day, chief economic advisor in the finance ministry Arvind Virmani also reiterated that fiscal and monetary interventions are needed to boost demand in India.
Ahluwalia: 2009 will be significantly worse than 2008
Planning Commission deputy chairman Montek Singh Ahluwalia painted a rather sombre picture of the economy at CII?s national conference in New Delhi on Friday (where he was photographed above): ?Is the problem going to end in 2009-10? I don?t think so. Our latest assessment is that on a calendar-year basis, 2009 is going to be significantly worse than 2008. We are likely to get a growth rate less than 7% (and) between 6.5% and 6.7% in 2008-09. The growth performance is likely to be repeated in the next fiscal, 2009-10. The deficit will be well over 6% of the GDP.?