India Inc today welcomed the government's decision to reduce excise and service tax by 2 per cent besides extending 4 per cent excise duty cut beyond March 31, and said this would further stimulate and strengthen the economy.
External Affairs Minister Pranab Mukherjee - who is handling the finance portfolio as Prime Minister Manmohan Singh, who is heading that ministry, is recovering after a heart surgery - announced excise duty and service tax cuts by 2 per cent in what is being touted as the third stimulus package to help corporate India tide over the impact of global economic crisis.
The duty reductions, seen as costing the exchequer Rs 30,000 crore ($6 billion or Rs 300 million), come over and above the 4 per cent cut in central value added tax announced in December, which has now been extended beyond March 31.
Welcoming the announcement, the Confederation of Indian Industry (CII) said the announcement would stimulate demand.
"The further reductions in excise and service tax by 2 per cent and extension of the earlier 4 per cent cut in excise duty beyond 31 March 2009 will go a long way in stimulating consumption demand," said CII Director General Chandrajit Banerjee in a statement.
The reduction in excise duty on bulk cement to 8 per cent would also help reduce costs of real estate and infrastructure development, he said.
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The Associated Chambers of Commerce and Industry of India (Assocham) hailed the announcement but said it "had expected some sort of direction in today's announcements for Reserve Bank of India (RBI) so that it takes a cue for reducing cash reserve ratio, repo rate and reverse repo rate by at least 50 basis points".
"This would have been much more welcome as industry is still hopeful that the RBI on its own will come forward to meet the minimum expectations of India Inc since access to liquidity at relaxed interest rates is still an issue, especially for large and medium-sized industries," said Assocham President Sajjan Jindal.
He said the corporate sector had anticipated some sort of relaxation for steel and other allied sectors.
Said Harsh Pati Singhania, president of Federation of Indian Chambers of Commerce and Industry (Ficci): "These moves are indeed welcome as the Indian economy is going through a rough patch and requires support. These measures would help the domestic economy and keep it moving forward at a time when the external markets are in a bad shape."
The Federation of Indian Export Organisations (FIEO) said the fresh measures would boost domestic economy though on a limited basis.
"The reduction in service tax rates will add to export competitiveness by about 0.25 per cent as refund of service tax is a herculean task," said FIEO President A Sakthivel.
"Only a countable number of exporters have got refunds so far whereas majority of them are still awaiting for more than a year," Sakthivel added.