Budget 2007 is likely to ring in a bonanza for high employment-generating sectors such as leather, footwear, textiles & clothing and sports goods. Not only is the government likely to reduce Customs duty on machinery imports for the sectors, the finance ministry is also considering giving tax exemptions on reinvested profits.

The sources said that a 50% tax deduction on reinvested profits by the sectors was being considered. While the government is looking at a 50% tax deduction on reploughed profits, a final decision on the proposal is yet to be taken, an official said.

Although it is more or less certain that Customs duty on machinery for leather and textiles would be brought down to 5%, the level of duty cuts for machinery used by other identified sectors has not been finalised. The sectors that are likely to feature in the favoured list include leather, footwear, textiles & clothing and sports goods. Some other sectors such as handicrafts and gems & jewellery are also being considered.

Giving a boost to high employment-generating sectors and the small-scale industry is high on the UPA governments agenda and also features in the national common minimum programme (NCMP). The finance minister has already made public his intention to give sops to high employment-generating sectors in the forthcoming Budget. There is no doubt that duty cuts and income-tax exemptions are in store for the sectors this year, the official said.

The government, however, has not been true to the promise to exporters of employment-generating products made in the foreign trade policy announced earlier this year. In the policy, exporters of leather, handicrafts, handloom, value-added fish products, sports goods & toys and fireworks were promised an entitlement of a transferable duty credit scrip equivalent to 2.5% of 50% of the total fob value under the focus product scheme.

Last month, the government came out with a notification restricting the benefit to only exports made from EDI ports. Since there are just 24 EDI-connected ports out of the more than 300 ports in the country, the restriction ensures that a majority of exporters cannot avail the scheme. Sources, however, pointed out that since the new sops would be for the entire sector and not just exporters and would be financed directly by the finance ministry, things are expected to be smoother.