Budget 2007 - 2008

"An Inclusive Budget" : CII President / Falls short of expectations on Corporate Taxes : R Seshasayee

Posted On : 2007-02-28 20:05:07( TIMEZONE : IST )

Sound economic management at the macro level is a key feature of the Union Budget, stated Mr R Seshasayee, President, Confederation of Indian Industry (CII), complimenting the Finance Minister for adherence to fiscal targets. While giving his reaction to the presentation of the government’s statement of accounts for 2007-08, he said that the Finance Minister has presented a great progress report for the economy. The macro-economic management has resulted in strong positive position in the fiscal space, restricting revenue deficit to 1.5% and fiscal deficit to 3.3% for the year 2007-08, added Mr Seshasayee in a press release issued here today.

The strong emphasis on agriculture, education and skills development, as well as the innovative ideas on infrastructure are on the right track for inclusive growth. "In particular, I compliment the Finance Minister for significantly stepping up the expenditure on education," added the President, saying that the 34% increase in outlay for the sector during this year would help push towards attaining the target expenditure of 6% of GDP. The stress on vocational education and upgradation of ITI through public private partnership would also help translate the skills shortage into demographic dividend.

In the infrastructure space, there are nuggets of innovative ideas, such as allowing mutual funds to launch dedicated funds for the sector. Mr Seshasayee welcomed the initiative of a Revolving Fund of Rs 100 crores for project development, while the concept of National Projects allows direct central government intervention in infrastructure projects. While the idea of using foreign exchange reserves for infrastructure development is good, the real problem is the lack of a shelf of bankable projects, as alluded to by the Finance Minister himself. The concept of Tax Free Infrastructure Bonds for State Pooled Finance Entities is a positive step for urban infrastructure, said Mr Seshasayee.

The CII President said that CII has been pushing for knowledge, skills and technology in the 11th Plan period. While the skills challenge has been adequately addressed in the Budget, the technology aspect has not received enough focus. In particular, the importance of technology in the farm sector to enhance productivity and post-harvest management has unfortunately not been recognized. Weighted deduction for R&D has been extended for another five years and is welcome; however, this deduction had been sought for all sectors as R&D is the only route to sustainable development, pointed out Mr Seshasayee.

As the figures in the recently-released Economic Survey indicate, wherever private enterprise has been unleashed, it has achieved double-digit growth rates. Conversely, sectors where this has not been possible have experienced lower rates of growth. There is thus a need to steer the economy towards private enterprise, said the CII President. The Budget has recognized this in the case of education and skill development, but not adequately in the demand linkages in the case of the farm sector; for example, in cold chain and food processing.

For the corporate sector, the overall scenario remains positive in view of the greater demand for goods and services engendered by the higher investment in agriculture and the rural economy. But an opportunity for tax reform has been missed, stated Mr Seshasayee, since there is revenue buoyancy which could have supported a reduction in excise duty across the board. This in turn would pave the way to achieve a composite GST rate of no more than 20% by 2010-11. In particular, the move to manage cement prices implies market management. CII has stressed that the market is the final arbiter of prices and any tax distortions will only lead to unaccounted transactions.

In the field of customs duty, the reduction in peak duty to 7.5% is welcome. However, CII has said that this should be concurrent with internal reforms in GST, and reduction of transaction costs. The ‘tipping point’ for certain sectors may have already been reached, commented the President.

Under Direct Taxes, the irritants of MAT, FBT and surcharge could have been removed. Instead, these have been infused with further force by extension to areas not appropriate, said Mr Seshasayee.

While the increase in central investments in agriculture and social sectors is welcome, there is concern about the efficacy and efficiency in the administration of these schemes. Implementation is the key to outcomes, he added. In conclusion, Mr Seshasayee stated that Budget 2007-08 is a good blueprint for sound economic management, while issues in taxation remain to be addressed.

Source : Equity Bulls