Shot in the arm for manufacturing

INTERIM BUDGET & THE ECONOMY/CAPITAL GOODS

In his Interim Budget speech for 2004-05, finance minister Jaswant Singh has suggested that wherever there is exemption from the countervailing duty on an imported capital good, deemed export benefits ought to be given to indigenously manufactured capital good.

This will provide a level playing field and make the local units competitive. The domestic capital goods sector had been demanding such an initiative.

The announcement has come at a time when Indian industry has lined up a sizeable capital investment across sectors like oil and gas, power and textiles.

"The Interim Budget is on the expected lines. The direction of reforms and liberalisation continues. There is nothing radical, only cosmetic changes," said ABB Ltd vice-chairman and managing director Ravi Uppal.

Tarun Das, director-general of the Confederation of Indian Industry (CII), said, "This is a good news. The companies will become more competitive. They should be able to reduce the cost and pass on the benefit to the buyer."

He said during a recent visit to the Intech Fair in Mumbai he noticed that investment in the capital goods industry had taken off. "Order bookings have never been better. These are up 15-20 per cent," he said.

A scheme for giving deemed export benefits to specified projects, where procurement is through international competitive bidding, was already there. These included fertiliser projects spilled over from the Eighth and Ninth Five-Year Plans.

In the mini Exim Policy, announced a few days back, the government had extended these benefits to the Tenth Five-Year Plan. Now the benefits will accrue to all sectors whether the item concerned fall under the nil, 5 per cent or 10 per cent Customs duty.

Earlier, the minister had reduced to 10 per cent the Customs duty on a number of raw materials, intermediates and components for the manufacture of capital goods from 25-30 per cent.

The move to strengthen the IDBI's role as a development financial institution would also boost the capital goods sector, said Dilip Chenoy, CII deputy director.

This would enable industries to get loans at lower rates to buy machinery, which would promote the domestic capital goods industry, he added.