The Hindu Business Line : `Mini Budget' keeps India Inc busy

FROM the time news of early elections began appearing, a sense of anticipation of today's announcements on the indirect tax front had built up at leading corporates. But industry's reaction was tempered by the known requirement for WTO compliance and the path already outlined by the Kelkar Committee towards duty rationalisation.

Few ascribed anything exceptional to what happened, their perspective decided first by the distinction in constituencies addressed - `feel good'- seeking consumers and tariff sensitive manufacturers - and second, by the general trend worldwide for lower tariffs.

At one stroke, that diluted any euphoria for what PR agencies had dubbed, a `Mini Budget'.

On the other hand, there was a desire to peruse the fine print for details on sectoral impact and assess the impact of duty cuts on finished goods manufacturers. Said Mr Y.M. Deosthalee, CFO, Larsen & Toubro Ltd (L&T), "The capital goods industry will feel the impact of duty cut on project imports and power projects and the abolishing of the special additional duty, though beneficial to organisations investing in capacities."

Note too, the strong Indian rupee as incentive for import. On March 3, 2003, the week after the last Union Budget, the rupee had closed at s 47.60 to the dollar. At close today, it was Rs 45.56. It concerns more a weakening dollar and there is the possibility of some economic recovery in the US, but it is a strong rupee all the same.

And underlying it all for some officials, was acceptance of the Government's right to do what it did, but concern over the firmness of the move given its proximity to general elections, even its bearing on the same. In some quarters, faith in today's move was, therefore, a clear second to disclosures in the Budget.

Still, industry loves concessions and there was general welcome for the fall in input costs that duty reductions bring. "All these steps will eventually reduce input costs. Compared with China, input costs in India are 30 per cent higher," Dr Jiban K. Mukhopadhyay, Consultant, Tata Group, said. The cut in peak customs duty to 20 per cent falls in line with the Kelkar Committee recommendations and should add to the overall competence of Indian industry.

At 20 per cent, it continues to be high compared with rates elsewhere, non-farm customs duty in the West averaging about 3.8 per cent while peak customs duty in ASEAN is around 12 per cent. China, from a current peak of around 10 per cent is committed to bringing that down to about 7 per cent in 2-3 years time, he pointed out, explaining today's announcements. Those under pressure may find relief in the details that sometimes keep specific tariffs higher than the peak rate.

Efficiencies create survival space. Two-wheeler major Bajaj Auto Ltd (BAL) for instance, is not worried. According to Mr Sanjiv Bajaj, Vice-President (Finance), BAL, the biggest threat on the cost front to Indian 2-wheelers would be the Chinese. For reasons other than tariff (quality, emission compliance, distribution network etc), they never succeeded in gaining currency in the Indian market. And while 2-wheeler imports do not threaten as yet, BAL should only benefit from reduction in input costs.

Mr R.C. Nandrajog, Vice-President (Finance), Tata Steel, shared the view. There was a Rs 2,000 per tonne difference between the cost of landed and domestic steel. With the cut in peak customs duty, a gap of at least Rs 500 would survive. "Tata Steel is ready for it," he said.

Mini budget? Equally so, was the reaction. The phone lines gave the impression that corporate India was busy.

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