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Decoding The Interim Budget!

Published on Mon, Feb 24,2014 | 18:06, Updated at Mon, Feb 24 at 18:06Source : 

By: Anjlika Chopra, Director & Ankur Bansal, Manager, Deloitte India

The Interim Budget for the Financial Year 2014-15, presented by the Finance Minister, is primarily intended to provide relief to encourage domestic production in the Indian manufacturing sector. Recognizing that, manufacturing and automobile sectors are the key drivers of the economy; the interim budget has inter alia rationalized/ reduced the excise duty rates with respect to the following items:

  1. All mobile handsets and cellular phones
  2. Most of the goods falling under Chapters 84 and 85 of the Excise Tariff such as nuclear reactors, electrical machinery, capital goods and appliances such as washing machines, refrigerators, dishwashers, generators, transformers, etc.
  3. Motor vehicles used for transportation, including ambulances, taxis, road tractors, small cars, scooters, SUVs, large segment and mid-segment cars, etc.
  4. Chassis and trailers

Broadly, following are the industrial sectors, which would be significantly impacted with these measures.

  1. Mobile and Electronics Industry

In recent times, the policy of the Government is aimed at making India, a hub for manufacturing high-end electronic items such as mobile phones.. With a view to achieve this objective and promote the manufacturing of high--priced mobile phones, the Government has announced a significant excise duty cut on all mobile phones and cellular devices. The rate of excise duty on all mobile handsets has been reduced to 6% (if CENVAT credit is availed) and 1% (if CENVAT credit is not availed). Earlier, mobile handsets having a retail sale price exceeding INR 2,000/- were subject to excise duty @ 6% and other low-priced mobile handsets attracted 1% excise duty. The reduction in rates may not prove to be beneficial for the manufacturers of low-priced mobile phones, which were subject to 1% excise duty earlier. However, manufacturers of high--priced mobile phones (particularly, smartphone manufacturers) may have a reason to rejoice, as they may now explore the possibility of paying excise duty @ 1% without claiming any CENVAT credit.

These excise duty cuts could go well with the other schemes/ measures such as the Modified Special Incentive Package Scheme (M-SIPS) announced by the Department of Electronics and Information Technology, which aims to attract investments in Electronics Systems Design and Manufacturing Industries.

  1. Automobiles

The automobile industry has ever since, been considered as a major contributor to the economic growth, around the world. In India, the sector is going through a sluggish phase of demand and hence, as a short-term measure, the excise duty on various automobiles has been significantly reduced for a period upto June 30, 2014. With the notification of announcements in the interim budget, the excise duty on small cars, motorcycles, scooters etc. has been reduced from 12% to 8%; excise duty on SUVs has been reduced from 30% to 24%; duty rate on large and mid-segment cars has been reduced from 27/24% to 24/20%; and the duty rate on various chassis and trailers has also been reduced. These excise duty cuts come as a relief for the automobile industry, which has been registering a declining growth since last year, after having evinced a growth phase earlier over the last decade. Car sales alone, in the year 2013, reported a drop by almost 5%. Thus, these excise duty reductions may be seen as a much needed relief so as to incentivize growth in this sector.

  1. Manufacturing Sector

As a catalyst to the growth of the manufacturing sector, the excise duty on various capital goods and consumer durables, such as, nuclear reactors, boilers, turbines, engines, pumps, air- conditioners, refrigerators, television sets, transformers, generators, etc. has been reduced from 12% to 10%. These duty cuts would primarily stimulate growth of the manufacturing industry and provide an impetus to investment in the domestic industry. The Finance Minister has, in the speech, highlighted that the bearish state of the manufacturing sector is particularly worrisome..

These excise duty cuts also seem to fulfill another objective i.e. to promote import of essential capital goods into the country.. Thus, with the reduction of excise duty, there would be a corresponding reduction of CVD on imported capital goods, which would be greatly beneficial for promoting the domestic manufacturing infrastructure in India. A case in point would be that of machinery required for construction of roads where these reliefs could be of advantage in the areas of infrastructure development.

Thus, this interim budget broadly seems to address the concerns of the Indian manufacturing and automobile industries and aims to stimulate their growth, in a positive direction.


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