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Budget 2012: Industry Speaks

Posted: 20 Mar 2012     Print Version  Bookmark and Share

Keywords:Budget 2012  research and development  manufacturing 

PVG Menon, President, India Semiconductor Association (ISA): "ISA broadly welcomes the budget with its thrust on accelerating overall GDP growth from 6.9 per cent to 7.6 per cent. We welcome the thrust given to areas like infrastructure development, skill development, encouragement of R&D, and the focus on helping SMEs.

However, we view with concern the increase in service tax and increase in excise duty on certain items which are traditional consumers of the electronics and components industry in India.

We would have liked to see some initiatives being announced for the promotion of the domestic Electronics Design and Manufacturing (ESDM) industry, which has a potential to grow to Rs.19.80 lakh crore ($400 billion) by year 2020. We are also looking forward to the final policy as well as implementation details of the new National Electronics Policy as well as the National Telecom Policy, as related to ESDM sector."

Vijay Krishnamurthy, CFO, SmartPlay Technologies: The Union Budget 2012 has ignored the IT and ESDM industry which has the ability to catalyse the other sectors of the economy. These industries were adversely impacted by the withdrawal of tax exemption on software exports made after 31st March 2011 and the surprise levy of Minimum Alternate Tax (MAT) at 20 per cent on profits earned from their units operating in Special Economic Zones (SEZ) , which were supposed to be exempt from income tax.

Considering that the Indian IT (including BPO) industry is currently Rs.4.95 lakh crore ($100 billion) in size and employs 2.5 million skilled workforce which is expected to grow to Rs.11.14 lakh crore ($225 billion) and 10 crore respectively by 2020 (as per Nasscom Survey) and the Indian ESDM industry is expected to grow from the current demand for electronics of Rs.2.23 lakh crore ($45 billion) to Rs.6.19 lakh crore ($125 billion) by 2014 and Rs.19.80 lakh crore ($400 billion) by 2020 (as per the National Policy on Electronics), there is a pressing need for the Government to support this potential by fiscal policies and tax incentives that directly impact the IT and ESDM industry. Sadly these are missing in the Union Budget 2012.

The following positive measures announced by the Government however indirectly impact the ESDM industry:

a. Proposal to provide weighted deduction at 150% of expenditure incurred on skill

development in manufacturing sector. Details of the scheme are to be announced, after which the impact can be assessed.

b. Advance Pricing Arrangement is being permitted for a maximum period of five years at a time by entering into an agreement between the Income Tax Dept and the Indian entity seeking to undertake international transactions with its overseas Group entity, so that the disputes and uncertainity involving the determination of Arms Length Pricing for arriving at transfer pricing between the Indian entity and its foreign group entity, is eliminated. This is relevant to the IT and ESDM industry since several Indian units have international transactions with their overseas Group companies.

c. A Rs.5,000 crore India Opportunities Venture Fund is proposed to be set up with SIDBI for supporting small and medium units and mandating that Central Ministries and PSU's will source atleast 20% of their annual purchases from these small and medium units. While details regarding the sectoral allocation, if any, of this Fund is awaited, it is hoped that a sizeable portion will be earmarked for units in the ESDM sector in view of their multiplier effect on the economy.

d. Concessions and exemptions have been proposed for encouraging the consumption of energy-saving devices, plant and equipment needed for solar thermal projects.

In this regard, the Government while announcing a list of three additional businesses that would qualify for 100% capital expenditure deduction in addition to the existing nine specified businesses under Section 35AD for investment-linked tax incentives, could and should have listed companies engaged in the ESDM industry, to provide a fillip to the multiplier role of the ESDM industry in the national economy. Instead, they have selected such niche industries as bee-keeping and honey production as one of the three additional eligible businesses. The criteria for selection of industries eligible for investment-linked tax incentives under this Section apparently seem inexplicable.

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