Union Budget: Domestic entities get a shot in arm

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Published: March 1, 2015 2:12:17 AM

The slew of measures announced in the Budget are part of the Narendra Modi-led government’s flagship initiative aimed at raising the share of manufacturing in GDP and creating jobs

Laying emphasis on domestic manufacturing of defence equipment and cutting down over-dependence on imports, the government on Saturday raised the capital expenditure for defence by over 15% to R94,588 crore for the next fiscal, as compared to the revised estimates of R81,965 for 2014-15. Finance minister Arun Jaitley, while presenting the Budget, said the country had been over-dependent on imports with its attendant unwelcome spin-offs, and added that the steps taken by the government will enable “Indian-controlled entities to become manufacturers of defence equipment, not only for us, but for exports.”

Make in India policy will achieve greater self-sufficiency in the area of defence equipment, including aircraft. Members of this august House would have noted that we have been both transparent and quick in making defence equipment-related purchase decisions, thus keeping our defence forces ready for any eventuality,” the FM said.

Moreover, in a bid to incentivise ‘Make in India’, Jaitley proposed cuts in custom duty of 22 items, including inputs, raw materials, intermediates and components to minimise the impact of duty inversion and reduce the manufacturing cost in several sectors. “I propose to fully exempt all goods, except populated printed circuit boards, for use in manufacture of information technology agreement-bound items from special additional duty (SAD) and reduce the SAD on imports of certain other inputs and raw materials subject to actual user condition.”

Welcoming the announcements, Dhiraj Mathur, partner and leader, aerospace and defence, PwC, said, “The reduction in royalty withholding tax from 25% to 10% for technology purchase is a very important and welcome measure. The 11% increase in Budget is also welcome. Overall they might be limited, but are very effective provisions that will promote indigenisation.”

To encourage domestic manufacturing of commercial vehicle (CVs), the finance minister raised effective tariff rate on imported CVs to 20% from 10%, making the import of completely built units expensive. “Tariff rate on commercial vehicles is increased from 10 % to 40 %,” Jaitley said while presenting the Budget. Announcing more steps to help indigenous manufacturers from rising steel imports, government hiked the basic customs duty on the metal to 15%. The government also cut the SAD on metal scrap from 4% to 2% in the Budget for 2015-16. “Tariff rate of basic customs duty on goods, including  iron and steel and articles of iron and steel, is being increased from 10% to 15%,” Jaitley said, adding that there was no change in the existing effective rates of basic customs duty on these goods.

Further, the duty cuts announced in the Budget are designed to spur ‘Make in India’ objective in sectors like mobile phones and tablets and other PC components. The finance minister increased duty benefits for domestic producers of these electronic items by changing excise duty structure for mobiles handsets, including cellular phones, to 1% without Central Value Added Tax (CENVAT) credit or 12.5 % with CENVAT credit. Also, while a levy of 4% of SAD on PC components was removed, education cess was imposed on imported electronic products. The slew of measures announced in the Budget are part of the Narendra Modi-led government’s flagship initiative aimed at raising the share of manufacturing in GDP and creating jobs, the minister reiterated. According to World Bank data, the share of manufacturing sector in India has gone down to 13% in 2013 from a below-average 15% level in 2010.

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