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Advance tax mopup rises 30% In Jan-Mar, shows all's well at India Inc
March, 18th 2011

India Inc paid robust advance tax in the fourth quarter this fiscal, an indication of better corporate performance despite concerns over margins and slowdown.

The collections for January-March 2011 quarter are up about 30% from a year-ago period, according to preliminary data.

"Initial trends are very encouraging," said an income tax official, but added a clear picture would emerge only after data is compiled nationally.

Upstream oil company ONGC was the biggest tax payer with an advance tax payment of Rs 2,270 crore, thanks to high crude prices, up 35% from a year ago.

But experts say this kind of bouyancy in corporate tax revenues is not sustainable because of the increasing cost pressures on companies and expected slowdown in demand because of rising interest rates.

"While all other indicators such as credit growth, purchase managers index show slowdown has not set in, there could be some worry on account of margins going forward," said Abheek Barua, chief economist, HDFC Bank .

The Reserve Bank of India lifted its key policy rates by 25 basis points each, the eighth increase since March last year.

"The numbers reflect that corporate profits are still high, but going forward this may not continue and profits may decline," said D K Joshi, chief economist, CRISIL.

State Bank of India paid an advance tax of Rs 1,500 crore, up 20%, but with interest rates on the rise the pace of growth in profit is expected to slow down.

A Crisil report on the impact of the rate increase by the RBI says banks will not be able to increase lending rates in line with the rise in cost of funds, which will cut net interest margin by 15-20 bps in 2011-12. One basis point is one-hundredth of a percent.

Industrial growth has already moderated to low single digits in the recent months while high inflation and rising commodity and fuel costs are making expenses rise at a fast rate.

The federation of industries of India said on Thursday that steel prices had risen about 30% in the recent months, creating problems for the various user industries.

Healthy growth in advance taxes will help the government garner extra revenues to meet additional expenses. The government had proposed an extra expenditure of over Rs 12,000 crore in its third supplementary demand for grants, which was not mentioned in the revised estimates presented in the Budget.

This additional expenditure was to be met through savings.

"Stronger revenues have helpd the government shore up funds", said Abheek Barua.

 
 
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