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>Rollbacks: Industry suggests investment fine-tuning

>There are inadequate measures in the Central Budget that especially hurt the manufacturing sector and discourage investments, pointed out Industry, reports Nabina Das

New Delhi, April 19 (2002)

Anticipating rollbacks in Central Budget 2002, the Confederation of Indian Industry has now submitted its “post-Budget memorandum” to the government for probable revisions in the existing one. The CII calls it “fine-tuning to encourage investments”.
A Confederation source stated that if there is at all a move by the government to roll back measures like LPG and petro product prices or remove the 5 per cent surcharge on income tax, etc., it also should be able to “revise and correct” measures that would help the Indian industry in terms of investment generation. “There should be no reason why the Finance Ministry cannot take such recommendations into consideration. In fact, by helping the industry, they will only earn goodwill, which they some how forfeited,” an Industry source said.
The apex body has said that additional 15 per cent depreciation allowed on purchase of new plant and machinery in the Union Budget for 2002-03 is not “adequate” in its present form to encourage investments in the manufacturing sector. In its post-Budget memorandum submitted to the Finance Ministry, it has been pointed out that 15 per cent additional depreciation on plant and machinery as a measure to promote the manufacturing sector comes with certain conditions, rather difficult to fulfill. Industry is of the opinion that the requirement to set up new units or enhancing capacity to the extent of 25 per cent or more “may not be possible in several sectors due to the existing economic conditions”. An industry source close to the CII said, “This reduces the effectiveness of the measure considerably and would fail to promote investment in plant and machinery.
Plant and machinery acquired and installed by existing units after March 31, 2002, would not be eligible for additional depreciation of 15 per cent unless its builds additional capacities of 25 per cent or more.” The prevailing economic conditions make it imminent that the requirement of the capacity enhancement of 25 per cent should be dropped, feels industry. There are restrictions on the availability of the additional depreciation benefit in the form of ineligibility for plant and machinery acquired before March 31, 2002, but installed thereafter, for additional depreciation. “This restriction on claiming additional depreciation on plants and machineries acquired ‘prior to March 31, 2002, and installed later’ would dilute the benefits of additional depreciation to a great extent, “ said the source.
The CII has suggested that such plant and machinery should also be allowed for additional depreciation. The source stated, “Limiting the availability of the additional depreciation only on plant and machinery would also reduce the scope for its use in large scale. Therefore, additional depreciation in case of acquisition of office equipment and transport vehicles should also be allowed.”
According to Industry, the provision of 15 per cent additional depreciation does not apply to cases where the existing plant and machinery are being replaced by a new set of plant and machinery. In view of the efficiency gains that such a change would bring about, it has been suggested that replacement of old plant and machinery should also be eligible for additional depreciation. For the moment although there is a hint from the government side of rollback on taxes and the prices of LPG and petro products, it is yet to be seen whether such moves actually materialize.
Given the Gujarat impasse, budgetary rollbacks may be one of the last trump cards the government would like to play to remain in command of the situation. With industry deciding to push for its own revisions and corrections, it might not be a smooth sailing for the Finance Ministry. After all, the Central Budget is now the property of Parliament and any change will take place in it only after debate and discussion between the members, not just by the ruling party.

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This entry was posted on May 3, 2008 by in budget, CII, gujarat, india, industry, Nabina Das, prices.
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