Interim Budget 2014: A vote for growth?

Though not much was expected from interim Budget, Finance Minister P Chidambaram announced a slew of measures to boost growth of the manufacturing sector. FM reduced excise rates on many capital goods and consumer goods to 10% from 12%. For the automobile sector, he reduced excise duty for small cars, scooters and commercial vehicles by 4% to 8%; for larger cars by 3-4%; and for sports utility vehicles by 6%. For chemical industry, in particular, customs duty structure on non-edible grade industrial oils and its fractions, fatty acids and fatty alcohols has been pegged at 7.5 per cent to encourage to domestic production of soaps and oleo chemicals.
 
But will these measures, though interim, stimulate consumption and, hence, growth of the manufacturing sector? Here is what industry experts have to say…
 
Vipul Shah, President, CEO & Chairman, Dow Chemical International Pvt Ltd and APAC Regional Director, Functional Materials:
 
The $110 plus billion Indian chemical industry is passing through a challenging phase. With growth decelerating and no major investment on the horizon, earlier estimates of the industry growth of 11% and an estimated $224 billion size by 2017, appear difficult. While we understand that the Finance Minister was presenting a Vote on Account, we had hoped that the government would tweak a few tax rates, bring about rationalisation in corporate tax, or simplify cess or duty structure.
 
Like the Finance Minister, we too would like to see Goods & Services Tax (GST) take effect, at the earliest. We hope that the new government will be able to resolve all the pending issues in relation to GST. While this economic reform will go a long way to streamline growth, it is pertinent to highlight the need for a GST framework that encompasses and absorbs multiple taxes, currently levied at the state and local levels. 
 
Our other key expectations from the new government include: Setting up of chemical parks, 'zero duty' on the import of chemicals to facilitate easy availability and higher import of cheaper feedstock, tax holidays for players and a complete waiver of Special Additional Duty (SAD). All/most of these reforms, if implemented, will give the industry a much needed boost and take it closer to the growth estimates.

Vivek Gambhir, MD, Godrej Consumer Products Ltd:
 
The reduction in customs duty for non-edible oils should have a favourable impact on input cost pressures for the soaps category. As far as stimulating demand is concerned, much more will depend on overall GDP growth and consumer sentiment getting more positive.
 
Aashish Kasad, Partner - Tax & Regulatory Services, Ernst & Young LLP: 
 
Overall, as anticipated, the interim Budget had no new proposals from a direct tax perspective and a few indirect tax proposals, with the much needed big-bang changes to accelerate the GDP growth having to await the formation of a new government post elections. At a macro level, the Indian chemical industry and its related industries are seeking a clear road map from the Government to make investments in setting up new plants and research and development in India. The Indian chemical sector will look forward to the new Government introducing the much-awaited laws such as GST and DTC to simplify the regulatory framework and spur growth, while creating an enabling environment for new investments by making taxes such as DDT and buyback tax creditable.
 
Sameer Nagpal, MD & CEO, Shalimar Paints:
 
The paint industry has been impacted by the slowdown in economy and rise in raw material costs. The Finance Minister’s focus on reviving growth and to boost manufacturing is encouraging. Since paint has high import component, stability in Rupee will help the industry. Additionally, the support announced to develop the North Eastern and hill states is a positive move. As these areas develop, there will be an enhancement in lifestyle, which is expected to spur demand for paints. Shalimar Paints has a stronghold in hill states and we will benefit if these areas register higher growth rates.
 
Dr Chandan Chowdhury, Managing Director-India, Dassault Systemes:
 
Our manufacturing sector has been facing many challenges and its growth has been stagnant. It is heartening to see the emphasis this vote on account puts on the criticality of manufacturing for the Indian economy. If the manufacturing sector has to contribute 25% to India’s GDP, then we need to reengineer our processes through technology enabled innovation. Manufacturing is now operating in an experience economy and the customer buying behaviour is fundamentally changing. Beyond product attributes, aesthetic and economics, customers make their buying decisions in a social and emotional context beyond technology. Manufacturing sector would need special attention of the government to become globally competitive.
 
India is a strong services economy but it now needs to graduate to an innovation centric economy if it is to move to the next level of growth. The vote on account today clearly reiterated the relevance of the focus on innovation by sharing the plans for the Innovation Fund being made viable for MSMEs in India. The MSMEs form the backbone of the Indian economy and if they make innovation a part of their strategy, they would become more responsive to the requirements of a globalised world.

Samit Jain, Director, Pluss Polymers
 
This interim budget is important as India fights its way back to greater than 8% growth trajectory. A significant boost to the industry is needed and the government scored brownie points by reducing the excise duty on select capital goods. It will have a ripple effect on the ancillaries to the automotive industry as the demand for automobiles will increase. This will provide a much needed boost to the manufacturing sector. However, it was again unfortunate that no specific timeline was given for introduction of GST. A multitude of agencies and taxes continue to harass the SME’s. Taxes have to be streamlined for the industry to conduct business smoothly.
 
The country needs to focus on innovation to solve its unique problems and this has to come from the SME’s. It is unfortunate that the focus on encouragement of innovation among the SME’s was missing.
 
Besides, the Finance Minister as always made a general statement that we must focus on the manufacturing sector but there was no mention on what and how it intends to do it with respect to the SME sector. The SME sector is responsible for more than 50% of the jobs in India and the government needs to come up with innovative policies so that the SME’s can thrive in this globalized world. Hopefully, the new government would look at this when it presents the full budget later this year.