Budget doesn't excite Tamil Nadu

Leather industry: Limited impact

The Union Budget didn't meet the expectations of the leather industry in Tamil Nadu. M Rafeeque Ahmed, chairman of Ficci's Tamil Nadu State Council and head of shoe-maker Farida Group, said the incentives announced in the budget for the leather industry would have a limited impact.

For instance, the proposal to reduce excise duty for shoes priced between Rs 250 and Rs 750 would have a limited impact on the leather industry, and the benefits would be restricted to a handful of companies, he said. Ahmed said the industry expected that the budget would remove excise duty on tanning machinery. Tanning machinery is largely imported and the excise duty on this has resulted in countervailing duty on imports, he said.

Ahmed said the industry wanted the government to establish a fund with a corpus of Rs 100 crore to support the tanning industry's effluent treatment plans.

Tea Industry: Mixed bag

The announcement of the Special Purpose Tea Fund (SPTF) in the Financial Bill has evoked a mixed response from tea industry in the state.

The SPTF corpus, which was proposed by the Ministry of Commerce for the replantation and rejuvenation of tea bushes for the next 15 years, was originally pegged at Rs 4,000 crore. Of this, the Tea Board will get 50 per cent and the remaining amount will be advanced through commercial banks at an interest of 8 per cent. Subsequently, this was reduced to around Rs 500 crore.

United Planter's Association of Southern India(Upasi) is happy about the reduction of customs duty on packaging items and machinery from 15 per cent to 5 per cent. This would boost value-addition in the tea sector and create new avenues for tea packaging.

But a section of tea growers and auctioneers in the region are unhappy over the extension of service tax to auctioneering as it would lead to a marginal increase on input cost.

"At a time when we are implementing new methods like opening up of tea parlours and lounges across the country to lure the cola drinking population, the move to cut the duty on aerated drinks would adversely affect the industry," a plantation source said.

Sugar Industry: Isn't sweet

The Budget had nothing sweet to offer to the sugar industry, feels industry sources in the state. It did not have any incentive for the industry. Moreover, the increase in the tax levied for molasses adds to its woes.

Rajshree Pathy, chairperson and managing director, Rajshree Sugars & Chemicals, said: "The Budget was disappointing as far as the sugar industry is concerned." She added that the industry expected incentives in the area of blended fuel. In the case of excise duty on molasses, it remained at a flat rate of Rs 750, while the industry wanted the duty to shift to an ad valorem rate, she said.

S V Balasubramaniam, CMD of Bannari Sugar Mills, said reduction in the interest on short term loans for farmers will lead to more cultivation of sugarcane. This would mean an increased production of sugar which could touch about 22 million tonnes from the current amount of 18.1 million tonnes a year.

"The additional production can cater to the export markets, especially Thailand, China, Bangladesh and Pakistan. This also gives the country an advantage over Brazil since Brazil's cost of shipping and delivery time is more," he added.

Textiles Ind: Gets the fillip Rationalisation of duty structure, lowering of the input costs and higher allocation to the Textile Technology Upgradation Fund Schemes (TUFS) may propel the textile industry to continue spinning success story.

According to A Sakthivel, chairman of Indian Chamber of Commerce and Industry, Coimbatore and Tirupur Exporters' Association (TEA), "Lowering of excise and customs duty on man-made fibre proposed in the Budget will bring down the raw material cost for the textile industry and enhance the scope for higher synthetic textiles exports from the region, which so far has been concentrating only on cotton textile exports".

SIMA chairman S V Arumugam said that the higher budgetary allocation of Rs 535 crore from Rs 435 crore towards TUF is another positive measure. But this will fall short in view of the increased TUFs investment happening in the industry.

Besides, the cut in the customs duty of specified textile machinery from 15 to 10 per cent is a continuation of last year's measure. Given the significant constraint in the supply of machinery by the domestic players, this would prompt the entry of more foreign players, especially China.

However, the industry is disappointed over the FM's silence on the issue of labour reforms and on the extension of TUFs till 2010, which were on the top of wishlist.

Manikam Ramaswami, chairman and managing directorm Loyal Textile Mills, said the measures relating to the Technological Upgradation Fund (TUF) were inadequate. Ramaswami felt that despite the the trimming of import duty on chemicals such as PTA and DMT, the duty at 10 per cent was on the higher side.

NBFC: Wants 100% service tax exemption

The non banking finance companies (NBFCs) have traditionally been strong in Tamil Nadu particularly Chennai. Finance minister P Chidambaram in Budget 2006 has exempted 90 per cent service tax to financial leasing services including equipment leasing and hire purchase (on the difference between the installment paid towards repayment of the lease amount and the principal).

T T Srinivasaraghavan, MD, Sundaram Finance, said, "We are happy that the FM recognised the plea of the NBFCs, but we would like a 100 per cent exemption of the service tax."

Mahesh Thakkar, director general, Finance Industry Development Council, said the NBFCs was thankful on the rationalisation of 90 per cent service tax on leasing and hire purchase. A service tax was levied on the interest portion of leasing and hire purchase during 2001, from then most NBFCs have moved to providing loans to its customers.

Thakkar said that the council would make representation on the removal of the remaining 10 per cent service tax during the post budget memorandum. The other pre-budget proposals such as funding establishments for the NBFC, provisioning norms for non performing assets to be treated on par with banks and external commercial borrowings to be allowed under the automatic route would again be represented, he added.

Plastic Industry: Feels let down

The Tamil Nadu Plastics Manufacturers' Association, which represents about 5,000 plastic processing industries in Tamil Nadu and Pondicherry, said that it was disappointed with the budget proposals, saying that introduction of additional levy of 4 per cent on raw materials will be a burden for manufacturers in Tamil Nadu as VAT not been introduced in the state.

The association said that the additional levy will more than neutralise the benefits though the custom duty reduced to 5 per cent. State's entry tax of 4 per cent on a select commodity plastics raw materials is a burden for the industry as no set off is available for the manufacturers. This additional levy of 4 per cent will push up the cost of raw materials further and make the industry further incompetitive.

can be cut--------- The plastics industry has the highest amount of tax levies - 16 per cent excise duty, 4 per cent entry tax (without set off) and 12.4 per cent local tax -- and now additional levy of 4 per cent - all these add up to 36.5 per cent. This is still a dose of taxation especially when the products are used by the common man. The industry was hoping for reduction in the excise duty from 16 per cent to 8 per cent. Most of the plastics processing units are in the small and tiny sectors. The present SSI exemption limit is highly inadequate as material cost is around 95 per cent and the industry has been pleading for higher SSI limit of at least Rs 3 crore. The budget has not any concession for the SSI units. Two key industrial estate associations welcome the proposals

Amabattur Industrial Estate Manufacturers Association has said that the SSI sector of Ambattur was happy with the budget as the reduction of excise duty on cars would give a boost to manufacturers of auto components and sub assemblies for four wheelers. K P Shashidar Rao, president of AIEMA said, in a release, that by reducing the customs and excise duties on several raw materials like steel,non ferrous metals and plastic, he has made it cheaper for us to manufacture. This will make Ambattur Industrial Estate a Manufacturing Hub. From Small Scale Industries point of view, reduction of customs and excise duties on steel, plastic and nonferrous metals will go a long way in helping the small industries in reducing the manufacturing costs. The excise duty on small cars with an engine capacity of 1200 cc in petrol and 1500 cc in diesel has been reduced from 24 per cent to 16 per cent. This will result in better sales and larger volumes and greater demand for auto components and sub assemblies being manufactured in Ambattur Industrial Estate. The Industrial Estate Manufacturers Association, Guindy has said that reduction of customs duty on plastics and on aluminium and non ferrous metals would the small and tiny sector. While also welcoming power capacity additions and reduction of one time guarantee fee from 2.5 per cent to 1.5 per cent, the association has said that the allotment of Rs.118 crore for 2006-07 was very meager. It also expressed disappointment over the increase of service tax to 12 per cent as it would affect the small and tiny sector. "There is no mention in the budget about tiny sector, which compises 90 per cent of the small industry," it said.