Budget 2014: FM Arun Jaitley announces measures aimed at reviving local production

NEW DELHI: The manufacturing sector got a major thrust in the budget, with finance minister Arun Jaitley announcing a bagful of measures aimed at resuscitating local production. These include rectification of duty structure, setting up a single-window services portal and venture capital fund, and steps to speed up work on industrial corridors and clusters.

One of the biggest takeaways from the BJP government's first Budget was the proposal to rectify what Jaitley called an inverted duty structure, wherein the import tax on finished products is lower than that on parts, affecting the competitiveness of local manufacturers.

The minister announced a cut in basic Customs duty on various raw material and intermediate products. Higher duties on such products have been encouraging companies to import finished products rather than manufacturing them at home. "The manufacturing sector is under stress due to a variety of reasons," Jaitley said while announcing reduction in the basic Customs duty on components.



Imports of LED and LCD TV panels for TVs with screen size of less than 19 inches have been made duty free, scrapping a 10 per cent tax levied on them. The budget also proposed to drop a 7.5 per cent duty levied on material such as fatty acids and crude palm stearin used in manufacture of soaps.

In some other cases, the basic Customs duty will be increased to protect domestic industry. The tax on flat rolled products of stainless steel has been proposed to be increased to 7.5 per cent from 5 per cent to provide an impetus to the local stainless steel industry by making imported products costlier.

India's free-trade pacts (FTAs) with Japan, South Korea and the 10-nation Asean have been blamed for making locally-produced goods less competitive in the home market. "This (budget) highlights the government's intent to address the inherent problem of anomaly in the duty structure, rather than simply blaming the FTAs for it," said Ram Upendra Das, professor at Research and Information System for Developing Countries.

The government tried to go to the root of the problem that will make manufacturing more competitive and help India's finished products gain market access into other countries, he added.


India's manufacturing sector growth contracted by 0.7 per cent in the fiscal year ended on March 31, 2014. That was the first time it shrank since 1991-92.

In an effort to ease doing business in the country, all central government departments and ministries will integrate their services with the e-Biz platform by December 31 to provide a singlewindow portal, which will provide all business and investment-related clearances through a 24x7 single portal with an integrated payment gateway.

Interestingly, the Central Board of Excise & Customs and the ministry of environment and forests had earlier shown reluctance to integrate their services with the portal, citing security as among the reasons. India ranks a poor 134 out of 189 countries in the World Bank's Ease of Doing Business Index.

While the government has been emphasising the revival and review of special economic zones, the budget did not see a concrete announcement related to minimum alternate tax (MAT) or dividend distribution tax. These taxes, which are partly blamed for a recent fall in investor interest in SEZs, were widely expected to be cut or withdrawn.

NOMINAL GDP GROWTH

This is one of the key numbers in the budget. It's the value of goods and services produced by an economy measured in terms of current prices. It gives an idea of the growth and inflation assumed in the budget. This is used to calculate fiscal deficit as a percentage of GDP, a number that's watched closely.