Depreciation allowance norm relaxed

MANUFACTURING/ Capacity spread limit cut; proposal seen pro-growth

To boost investments in new manufacturing capacities, finance minister P Chidambram has proposed a 10 per cent rise in capacity, as against 25 per cent at present, to be eligible for the additional 15 per cent depreciation allowance.

Industry experts say the proposal is a pro-growth initiative as companies were finding that they can't avail of the benefit unless they expand capacity by a quarter, which in many cases entailed substantial investments.

"At present not many companies are expanding capacities by 25 per cent. So while the additional 15 per cent depreciation allowance was encouraging, it was not applicable," said N Srinivasan, director general of the Confederation of Indian Industries.

"Now there will be an incentive for companies to undertake even small additions to capacity," PriceWaterhouseCoppers executive director Rahul Garg said.

"This will offer greater benefits for the manufacturing sector," Ernst & Young national tax director Mukesh Butani added.

"The reduction on the floor level for additional installed capacity expansion will help companies like ours in IT manufacturing. We were looking at a 20 per cent incremental installed capacity expansion, so we can now get the benefits of the additional depreciation," said Ratul Puri, executive director, Moser Baer.