Govt cuts excise duty, offers sops for key export sectors
December, 08th 2008
n a bid to minimise the impact of the global economic slowdown on the Indian economy, the Government on Sunday unveiled a multi-dimensional fiscal stimulus package that is expected to help boost output across sectors and stoke growth.
The measures include an additional Plan expenditure of up to Rs 20,000 crore this fiscal, an estimated excise duty give-away of Rs 8,700 crore, a 2 per cent interest subvention for the labour-intensive export sectors and steps for improving the financing environment for infrastructure projects.
We will make special efforts to ensure that not only the additional expenditure of Rs 20,000 crore is spent this year, but even what has been budgeted is actually spent to support the growth of the economy, the Deputy Chairman of the Planning Commission, Mr Montek Singh Ahluwalia, told a press conference here.
On the excise duty front, the Government has effected an across-the-board cut of 4 percentage points in the ad-valorem cenvat for the remaining part of the current fiscal on all products other than petroleum and those where the current rate was below 4 per cent. Prior to the latest change, the three main ad-valorem excise rates applicable on non-petroleum products were 14 per cent, 12 per cent and 8 per cent.
India Inc had urged the Government to reduce excise duties when the latter had exhorted corporates to cut prices of finished products to tackle demand slowdown.
With the Government now responding favourably, indications are that the private sector producers would do what the Government had wanted them to do in terms of reducing prices. Mr Ahluwalia noted that market forces will make sure that producers will be under strong competitive pressure to pass on the excise duty benefits to consumers.
No direct tax cuts
Ruling out any cut in direct tax rates for now, the Cabinet Secretary, Mr K.M. Chandrashekhar, said that the focus has been on the indirect tax side only.
It is an ongoing exercise. We have already done in this years budget on direct tax side. The cenvat rate has now been cut by 4 percentage points across the board to ensure that there was no piling up of cenvat credit utilisation, he said.
The Finance Secretary, Mr Arun Ramanathan, said that the Government revenue foregone on the excise duty front was estimated at Rs 8,700 crore even as he maintained that the elasticity of demand would finally determine the actual revenue impact.
On infrastructure front, India Infrastructure Finance Company Ltd (IIFCL) has been authorised to raise Rs 10,000 crore through tax-free bonds by March 2009 and the proceeds to be used to refinance bank lending of longer maturity to eligible infrastructure projects, particularly in the highways and ports sectors.
Mr Ahluwalia pointed out that the IIFCLs resources used for re-finance could leverage bank financing of double the amount. In particular, these initiatives will support public-private projects of Rs 1,00,000 crore in the highway sector, he said.
For exporters, the Government has given 2 per cent interest subvention on both pre and post shipment credit for labour intensive export sectors namely textiles (handlooms, carpets and handicrafts), leather, gems and jewellery, marine products and the SME sector. This subvention will be available till March 2009, subject to a minimum rate of interest of 7 per cent a year.
Besides additional Rs 1,100 crore funds for full refund of terminal excise duty/central sales tax, the Government has allowed refund of service tax on foreign agent commissions of up to 10 per cent of f.o.b. value of exports.
On housing, Mr Ahluwalia said that public sector banks would shortly announce a package for borrowers of home loans in the two categories of up to Rs 5 lakh and Rs 5-20 lakh.
As part of the duty changes, the Government has decided to eliminate import duty on naphtha for use in the power sector, specifically with the objective of bringing into the grid power from idle generation units across the country, especially in States such as Andhra Pradesh and Tamil Nadu.
Also, the export duty on iron ore fines has been eliminated and reduced to 5 per cent on lumps. To give a further fillip to the auto sector, the Government departments have been allowed to take up replacement of government vehicles within the allowed budget, relaxing the austerity drive provisions.
The Government is of the view that the economy would continue to need a stimulus in 2009-10 also and this can be achieved by ensuring substantial increase in Plan expenditure as part of the budget for next year.
Meanwhile, Mr Ahluwalia said that it was difficult to put a number in terms of the impact of the stimulus package on the growth rate of the economy this fiscal. We have not revised the GDP estimates even if growth was at 7 per cent, it would be good in these circumstances. Seven per cent growth is feasible, Mr Ahluwalia noted.
Although fiscal deficit for the current year will be worse than what was budgeted for, Mr Ahluwalia noted that this was a desirable step in the face of external contraction in economic activity. Indian economy is in much better shape than many developed economies where recession has been formally declared, he said.