The decision not to lower the peak rates of customs duty across the board on manufactured goods is a positive decision in the wake of appreciation of the rupee against the dollar. Imports had already become cheaper and industries catering to domestic demand needed a breather before moving to the Asean levels of tariff. Sector specific issues, like steel prices, called for some relief and rationalisation of duty rate structure. The disappointment is that there are still too many exemption notifications on the same matter (like re-imports) and many of them refer to outdated provisions.
The excise duty reduction from 16 per cent to 14 per cent was quite unexpected but it is definitely a big-ticket reform. Consumer goods need not necessarily become all that cheaper because the abatements from retail sale price have been reduced. Few can quarrel with the decision to make pharmaceuticals cheaper but that would make relocating to tax-free areas like Himachal Pradesh or Uttarakhand less attractive. The duty reductions on items of mass consumption, items for use by students, items for healthcare, items for cold chain facilities etc. are welcome.
The excise duty reduction in the automobile sector is questionable. The Policy should encourage public transportation. Private transport ekes out a heavy cost from society and puts heavy strain on resources by way of more road space, higher fuel consumption, more pollution and so on. Anyway, the idea seems to be to counter the falling demand due to higher interest rates.
Surprisingly, the lawyers still continue to be outside the service tax net. The software developers have now been roped in and the duty rate on packaged software has also been raised. That is a disappointment because the Policy should encourage use of computers and legal software and not discourage it. The higher exemption limit of Rs 10 lakhs for small service providers is a welcome step and new provisions have also been made to resolve the disputes of small service providers.
Export-oriented units will be disappointed that there is no mention of extending the income-tax exemption beyond 2009. Relief for textiles and garment exporters is overdue. The exporters, besides diamond exporters, have got nothing except a few soothing words. Hopefully, the Commerce Minister will announce suitable measures to help the exporters cope with the rising rupee and economic slowdown developed countries.
The issue of how to moderate inflow of foreign funds beyond the absorbing capacity of the economy still remains unresolved. The Finance Minister has refrained from imposing any Tobin tax but raising short term capital gains tax might go someway in curbing speculation. His assurance that temporary measures to moderate capital flows to ensure monetary and financial stability is comforting. The measures to tackle speculative inflows will be very necessary to avoid excessive money supply that can have a bearing on inflation, exchange rate and consequently exports and employment.
Overall, the Budget has lifted the sentiments, although the stock markets did not immediately reflect the same. The confidence is back that we can cope with the turmoil in the global financial markets and that more people can share the benefits of growth, but inflation is a worry.
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