Corporate sector

Manufacturing, hit by rising input costs, slowing consumption demand in some and rupee appreciation woes in labour-intensive sectors, however, got some attention. Here while the FM pulled out the stops in excise cuts, especially aimed at select manufacturing industries, the others were left wanting.

Chanda Kochhar, Joint MD, ICICI Bank, believes: "The stimulus to the industrial sector, in the form of excise duty cuts, to pharmaceuticals, automobiles and few mass consumption items, will help invigorate consumption demand for these sectors. This is important, especially when the automobile sector, as also some of the other consumer durables, have been seeing a moderation in production, sales and credit offtake."

Says Kiran Mazumdar-Shaw, Chairman & MD, Biocon: "The excise duty waiver on indigenous life-saving drugs and making R&D investments more affordable might result in lower drug costs. I am happy with the emphasis on health insurance and tax holidays for new hospitals."

"The FM's prescription to promote consumption is classical and proven: increase disposable income by reducing personal tax burden; simultaneously slash prices through excise duty reduction. The massive outlay for social infrastructure and the rural sector will also fuel consumption," says R. Seshasayee, Managing Director, Ashok Leyland.

Those that were affected by the appreciating rupee, though were disappointed. A. Sakthivel, President, Tirupur Exporters' Association, says there is little relief for exporters. "We had requisitioned for the reduction of interest rates, exemption of service tax and fringe benefit tax, refund of state levies and taxes, refund of hedging costs given by the exporters— even any one of these measures could have provided some relief."

The FM's contention was that relief had already been provided to exporters in three tranches amounting to over Rs 8,000 crore. He also saw the interest cost of sterilisation through market stabilisation bonds (MSS), estimated at Rs 8,351 crore for the whole year, as a subsidy to the export sector. "Government is sensitive to the needs of the export sector and will continue to respond sympathetically as the situation demands," the FM said.

The general advice to exporters has been to improve efficiencies. Satish Reddy, MD and Chief Operating Officer, Dr Reddy's Laboratories, believes that "this is easier said than done, when some of the key sources of competitive disadvantage are direct consequences of government policy or infrastructure." Export growth in the first nine months of the current fiscal was 19.9 per cent, down from 24.8 per cent the previous year.

The same sentiment seems to be shared by Sanjay A, Kothari, Chairman, Gems and Jewellery Export Promotion Council, who says the industry had greater expectations from the Budget.

At a general corporate level, the allowance to a holding company to set off the dividend received from its subsidiary company brought cheer. While the measure may help a lot of conglomerates having one layer of subsidiaries below them, Nimesh Kampani, Chairman, JM Financial asks: "Why was the proposal not extended to subsequent layers of subsidiaries, which might have been established because of multiplicity of regulators, policies, compliances for different businesses, or simply because of independent business dynamics?"

However, there has been disappointment that there was no relaxation for the corporate sector in terms of lower tax rates, especially so in a year when the industrial growth rate is decelerating and corporate sector is in a major investment cycle. "One would have expected some measures for enhancing corporate savings. As bulk of the corporate investment is financed out of retained earnings, keeping corporate tax rate and surcharge unchanged particularly in a high interest rate regime can have a deleterious impact on investment and consequently industrial growth," says Roy, of the Tata Group.

Add to it the increase in shortterm capital gains tax. "There was no particular provocation for that levy at this point given that sentiment already had been affected," says Ashok Leyland's Seshasayee.

Enam's Bhansali agrees: "The changes in tax for the capital market were avoidable, but they will not kill the market. The measures for the debt market are welcome but long overdue." However, it may end up driving our speculators from the markets.

And as is the usual case with any Chidambaram Budget, there is usually a sting in the tail—here it was the commodity transaction tax which hit sentiment quite substantially.