The Hindu Business Line : Stepping stone to a developed economy

This budget comes in the backdrop of a growing economy, good growth in industrial production and services, swelling of interest rates and inflation. Sustainability of economic growth with moderate inflation depends on a major thrust for infrastructure initiatives, a fact corroborated by the Economic Survey.

The Budget proposals regarding infrastructure are cursory and inadequate. Specific initiatives are not detailed and the quantum of financing is not specified.

The Finance Minister mentioned proposed subsidiaries of IIFCL, which would borrow from RBI based on forex reserves. This will help Indian companies pursuing acquisitions abroad and implementing infrastructure projects there. However, the project would continue to be substantially dependent on domestic banks for lead appraisal and funding. Also, if the lending comes locally from RBI, it may result in higher domestic interest rates. Overall, a welcome development but could instead be achieved by giving priority status to infrastructure.

Steps taken to phase out CST are in the right direction. Reiteration on uniform GST is indicative of resolve.

Increase in DDT was unwarranted, especially when industry was expecting a reduction or abolishment. The Finance Minister has taken the easy option of tapping assured sources of revenue. There is no talk of exempting DDT on dividend received from step-subsidiaries. This is important as infrastructure projects are necessarily implemented as SPVs.

ESOPs are now an established and attractive method of compensating and retaining talent. Retention and reward for performance are the keys to efficiency and profitability. Levying FBT on grant of ESOPs is uncalled for, as impact would be at the highest tax slab.

Inclusion of software export profits under MAT has not been taken well by markets. However, we must realise that the IT sector is no longer a sunrise sector and must contribute. The impact is not likely to be much, considering tax relief available under Double Tax agreements.

Reductions in customs duty — peak rate and specifically on medical equipment — are disincentives for indigenous manufacturers. Reduction in customs duty on dredgers would benefit us.

The notion that increase in excise duty on cement would counter inflationary pressures is naïve. The proposal would lead to increase in prices that would be passed on to consumers. For Indian construction and infrastructure companies the costs would be higher and unpredictable.

Works contract now being included as a taxable category clarifies various doubts on taxability. Option to pay service tax of 2 per cent on composition basis would avoid onerous litigation.

Extension of the deduction available for R&D for another five years would continue to encourage innovation.

The tax holiday extended to cross-country pipeline projects and navigation channel projects are encouraging.

On the personal tax front, we are happy that perquisite value in respect of housing accommodation is reduced and that withdrawals limit has been enhanced for BCCT.

The Finance Minister has done well by not touching capital gains tax and service tax.

Increase in education cess was unnecessary, considering that a significant portion of the collections remain unutilised. In order to garner just Rs 3,000 crore from direct tax proposals, these trivial steps could have been avoided.

On the whole, this Budget cannot be seen as an event. It is one in many steps towards a mature, developed economy.

(The author is Chief Financial Officer, Larsen and Toubro.)