Cement the price line, FM urges India Inc

Finance Minister P Chidambaram today asked India Inc, particularly the cement companies, to hold the price line in order to help the government fight inflation.

"I am happy that most industries have not pushed up prices. But in cement, prices have gone beyond all reasonable limits," he told industry leaders a day after presenting the annual Budget.

On prospects for the next year, Chidambaram said he expected another year of high growth, with the economy estimated to grow at around 9 per cent this fiscal. "India's growth story is intact. I look forward to another year of high growth," he said.

Chidambaram said Budget 2007-08 was aimed at sectors like agriculture and education, which needed special attention. "The Budget has done nothing to hurt the growth story. Growth will be used to fund the social sector, which looks for assistance from the government. This Budget is meant for them," he said.

Stating that industry needed the government much less today than it did five to ten years ago, Chidambaram said, "Indian industry is virtually on auto-pilot. Every one of you is looking at overseas acquisitions. It is in your interest that agriculture grows at 4 per cent. Imagine what it will do to the demand for industry and services."

Assuring that he had done nothing to put an impossible burden on industry, he said, "The effective corporation tax rate is 19.2 per cent and the FBT burden was only 1 per cent when it was imposed in 2005."

"By increasing the service tax threshold limit to Rs 8 lakh, I have let go 2 lakh service taxpayers out of the tax net. I have increased the exemption limit for small-scale industry from Rs 1 crore to Rs 1.5 crore. Twelve lakh SSIs will benefit from the removal of surcharge on firms with a taxable income of Rs 1 crore or less."

Meanwhile, Parthasarthy Shome, advisor to Finance Minister P Chidambaram, today said the government expected the cement companies to not incorporate excise duty in their prices.

"We expect the cement companies to pay excise tax out of the higher margins that they will receive from the proposed dual excise structure," Shome said at a post-Budget analysis session organised by Pricewaterhouse Coopers.

The Budget has proposed a dual excise structure for cement. Excise duty will be reduced from Rs 400 per tonne to Rs 300 per tonne only if the cement is sold at a price not exceeding Rs 190 per 50-kg bag. Those selling at a higher rate than this will pay 70 per cent more duty at Rs 600 per tonne. Shome said the government had arrived at this excise structure, since the price of Rs 190 reflected market reality.

Terming the Budget as one of the least interventionist ones in the history of Indian economy, Shome said the government had interfered only at certain points where it was important to ensure equity.

"We calculated the built-in elasticity of the tax system which is very high, especially in corporate and service tax. The Budget therefore attempted to not touch the corporate sector over and above what has been given to corporates in the Special Economic Zones," he said.

Also, within corporate tax, the overall effective corporate tax rate works out to just 19.26 per cent. Corporate tax rate in India is comparable with competing countries, he said. Customs tariff rates have also been scaled back to 9.4 per cent.

Central Sales Tax (CST), however, contributes to 29 per cent of the total tax burden on corporates.

"The finance minister is keen to phase out CST. In three years, we shall be able to work out a model for Goods and Services Tax which could even necessitate a constitutional amendment," Shome said.