Multi-pronged attack on inflation intensifies

Written by Economy Bureau | Updated: Apr 30 2008, 11:22am hrs
New Delhi, Apr 29
FM targets steel, rice & cement in tax rejig

Finance minister P Chidambaram slashed customs and excise duties on steel, milk and butter oil, while making the export of steel and rice costlier, in the UPA governments ongoing battle against inflation. Housing costs could also fall for the middle class thanks to his latest tax rejig, while the price of staples like rice and milk could become more affordable for all sections.

While the minister asked industry captains at the CII annual session on Tuesday to hold the price line and warned of administrative measures if they did not fall in line, Prime Minister Manmohan Singh chipped in at the same venue, telling them to try to absorb to the extent possible the rise in input costs by laying emphasis on improved productivity. Singh said they must also pass on the benefits of tax and duty cuts to consumers.

Justifying the governments latest moves, Chidambaram said, There is no place for such measures in a liberalised economy. But when markets are distorted and wrecked, they have to be done.

The ministers tax changes will cost the exchequer Rs 1,500 crore. We have taken fiscal measures on steel and asked (producers) to moderate prices. Todays move will have a psychological significance and will induce them to reduce prices, he told reporters later. According to him, the RBIs CRR hike was also a clear signal that the monetary authority was focused on fighting inflation, too.

With steel contributing 21.3% towards current inflation, Chidambaram, in his reply to the debate on the Finance Bill, 2008, in the Lok Sabha, announced a cut in basic customs duties on pig iron, mild steel products and three critical inputs for making steel (metallurgical coke, ferro alloys and zinc) from 5% to nil.

The 14% countervailing duty on TMT bars & structurals, used to construct houses, has been dropped and a 5-15% export duty has been slapped on steel products.

He modified the duty structure on cement by imposing a 12% ad valorem duty on bags costing more than Rs 250/50 kg, against the current specific duty of Rs 600 a tonne. The move is expected to reduce the cost of this building material.

The finance minister also reduced import duties on skimmed milk powder (15% to 5%) and butter oil (40% to 30%). On rice exports, while he reduced the minimum price for exports from $1,200 a metric tonne to $1,000 a tonne, Chidambaram imposed a fresh export duty of Rs 8,000 a tonne to dissuade rice shipments, made more attractive following a global surge in prices.

The only sectoral sops offered was an extension of the tax holiday for Software Technology Park units by one year, and a three-year tax break for upcoming oil refineries to April 2012. At the CII meeting later, Chidambaram urged industry to cooperate with the government in its battle against the price rise. CII should impress upon industry and companies to work with the government to battle inflation. The current inflation is driven by a number of factors and I appeal to industry to contain it, Chidambaram said.