'Hike in excise duty, service tax may not yield desired result'

Hike in excise duty and service tax rates will increase the input cost, fuel inflation and lead to further slowdown in economic growth, corporate leaders said at an interface with Finance Minister Pranab Mukherjee here.

"What comes as a disappointment is the timing of the hike in excise and service tax rates. This will not only derail the moderating trend in inflation but will also further add to the burden on industry by increasing input cost," CII President B Muthuraman said.

Muthuraman, who is also Tata Steel's Vice Chairman, said the duty hikes were unlikely to yield the desired revenue that the government is anticipating, instead it will further slow down the growth and add to inflationary pressures.

Mukherjee in hid Budget 2012-13 has increased both excise duty and service tax rate to 12% from 10% earlier, aimed at generating Rs 45,940 crore additional revenue to the government's kitty.

Ficci President RV Kanoria said a token relief in direct taxes will not offset increase in excise duties and service tax rate.

"Whereas, the move towards broadening the tax base and aligning the tax rates towards the impending GST is welcome, one cannot deny the impact on inflation, perpetuating the continuity of a tight monetary policy, which in turn will impact investments and consequently growth," he said.

Rajkumar Dhoot, President, Assocham, said though several criticism could be heard from different quarters, a little detached look would take the Budget on different dimensions.

"In the midst of all this gloom, the Budget has struck a hopeful note. Pranabda, has recognised the importance of raising investment in the economy, more particularly, private investment," he said.

Stating that the Budget proposals apparently indicate that fiscal slippage had been uppermost in Mukherjee's mind, Muthuraman said the government should try to enumerate the value of land and other assets locked up in the Sick PSUs that cannot be revived.

In addition, the government could consider out of court settlements for tax disputes worth around Rs 3 lakh crore, he said. Dhoot proposed enhancing the rate of depreciation for Plant & Machinery from 15% to 25% to promote manufacturing.

Terming the budget "as pragmatic and as prudent as it can be", Muthuraman pointed out the political compulsions of the government saying, "and let us be frank, we cannot ignore the political reality of the country at this point of time."

"We cherish every aspect of the democracy that is India, but sometimes we have to understand the pulls and pressures of that and the price that it can extract," he added.