India Inc sees roses all the way

MAT increase is the only dark spot, but other sops promise to make up for it.

India Inc’s top bosses just can’t stop smiling. Apart from the goodies rolled out by Finance Minister Pranab Mukherjee, the Budget’s positive delta towards consumption through income tax reliefs has come as a pleasant surprise to most of them. India Inc is relieved that the minister has increased excise duty to 10 per cent, and not more.

A study by the Business Standard Research Bureau shows that manufacturing companies will have to shell out an additional Rs 25,500 crore for the financial year 2010-11. But most of the companies said the higher excise burden will be passed on to consumers without having any significant impact on demand.

While the increase in the minimum alternate tax (MAT) from the current 15 per cent of book profits to 18 per cent is a disappointment, the corporate sector is taking heart from the reduction in surcharge. Currently, domestic companies earning a total income of over Rs 1 crore in a year have to pay 30 per cent corporate tax. Besides, a surcharge of 10 per cent and education cess of 3 per cent are imposed on them, taking the total tax liability to 33.99 per cent. This now comes down slightly to 33.21 per cent.

The corporate sector is expected to save Rs 2,100 crore on this account. While the public sector oil and gas major Oil and Natural Gas Corporation Limited (ONGC) will save Rs 240 crore, the savings for Reliance Industries is likely to be around Rs 27 crore.

The MAT increase will mean an additional burden of Rs 4,035 crore for 998 companies which paid 15 per cent corporate tax in 2008-09. The rise in MAT is expected to affect the pre-tax profit of these companies by around 3 per cent.

The MAT burden for the top 10 companies in the list is expected to increase by Rs 2,000 crore in 2010-11. While Reliance Industries will have to pay an additional MAT of Rs 536 crore, NTPC will pay Rs 279 crore more, Bharti Airtel (Rs 275 crore), Reliance Communication (Rs 186 crore) and TCS (Rs 184 crore).

The corporate sector is, however, looking beyond the numbers and looking at the surge in consumption expected from the income tax reliefs.

Kaushal Sampat, chief operating officer, Dun & Bradstreet India, said at a time when the Indian economy was firmly on the revival path, what was required from the Budget was a further push for consumption and investment. “The Budget announcements have done just that.”

The continued thrust on agriculture, infrastructure and rural development will unlock much of the economic growth potential in the medium term. Although the excise duty rates have been raised, they still remain at the pre-crisis level and should not be a deterrent in the process of economic recovery, said Sampat.

Mahesh Vyas, chief of the Centre for Monitoring Indian Economy, said the Budget has quietly encouraged private sector investments. The effective reduction in direct taxes applicable to individuals and to corporates, no matter how small, will help sustain the current investment plans of enterprise. The Budget effectively reduces the taxes paid by individuals and, therefore, it increases the discretionary purchasing power in the hands of households. Enterprises will see a direct benefit in this. Their confidence in future demand is the key driver of their investment decisions.

The focus on infrastructure is also being considered to be a big plus. While construction and engineering companies such as Larsen & Toubro, GMR Infrastructure, Jaiprakash Associates and Gammon Infra will benefit, real estate companies such as DLF, Unitech and Sobha Developers will be winners because of the Budget proposal to give developers tax deductions on existing projects and relaxed norms for built-up area.

Drugmakers such as Dr Reddy’s Laboratories, Cipla and Biocon will also benefit as the Budget has proposed that the weighted deduction on in-house research and development expenses will be raised to 200 per cent from 150 per cent now.

Ashok Leyland Managing Director R Seshasayee said this might not be a game-changing Budget, but the positives are the fact that the fiscal health is still under control and that there is a fairly significant step up in investment programmes.

Bharat Forge Chairman Baba Kalyani sees a lot of positives in the Budget.

"Through this Budget, the finance minister has squarely addressed the three challenges before the economy, which he stated upfront in his speech — to bring back 9 per cent growth and set a challenge target of double-digit growth, to make growth more inclusive and to strengthen the structures of governance by improving delivery mechanisms," he said.