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Taking On Challenges

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ndia must make tough spending choices, Finance Minister P. Chidambaram said on Thursday, even as he unveiled a bigger-than-expected outlay for the coming fiscal year in one of the most highly anticipated Indian budgets of recent years. 
 
Total budget expenditure will hit 16.65 trillion rupees in the fiscal year that begins on April 1, Chidambaram said, despite expectations for cuts from current year levels, which are on track to hit 14.3 trillion rupees, or 96 per cent of the budget targetIndia must make tough spending choices, Finance Minister P. Chidambaram said on 28 February' 2013, even as he unveiled a bigger-than-expected outlay for the coming fiscal year in one of the most highly anticipated Indian budgets of recent years. 
India must make tough spending choices, Finance Minister P. Chidambaram said on 28 February' 2013, even as he unveiled a bigger-than-expected outlay for the coming fiscal year in one of the most highly anticipated Indian budgets of recent years
 
Total budget expenditure will hit 16.65 trillion rupees in the fiscal year that begins on April 1, Chidambaram said, despite expectations for cuts from current year levels, which are on track to hit 14.3 trillion rupees, or 96 per cent of the budget target. Here's how India Inc. reacted.

Gaurav Marya, Chairman, Franchise India
From a retail & franchise perspective, it seems like customer is just being  angled ,if not from one than from the other side: The food service & restaurant industry will take the levy of 12 per cent service tax at air- conditioned restaurants which do not serve liquor with a pinch of salt. Invariably, it will be burdensome for consumers who typically are more  single or newly weds with age bracket of 30 and 35 and may shun eating out frequently & look for home delivery options etc. As it is ,eating out is still in experimentative stage for Indians rather than  a  regular habit with Eating-out monthly average of once or twice a month , as against international norm of same frequency in  week as per our Indian Restaurant report produced by Franchise India & CIFTI-FICCI.

To share customer’s burden ,some growing restaurants in part  would take it upon themselves with the result that the top line of all F&B retailers will get a beating in the sector and also discourage new entrants in the sector. This may in turn also affect their external fund raising prospects as the unit profitability will take a beating.

This will particularly affect the quick service restaurants(QSR’s) who operate on very competitive pricing and will need for them to raise their prices in the coming months to balance their P/L.

Branded apparels will become less expensive as there will be no excise duty them. 10 per cent excise duty was levied on 30 per cent of the maximum retail price last year. Textile ministry has been allocated Rs 50 crore for establishing apparel parks. This will give a big boost to apparel branded retailer for their summer season particularly as cotton apparel, lingerie will now become cheaper. It  would significantly ease the cost pressures in the industry.

Adi Godrej, President, CII
The Budget meets most of our concerns regarding fiscal consolidation, investment incentives, and inclusive growth. These are in alignment with CII’s submissions in its pre-Budget Memorandum to the Finance Ministry. Fiscal deficit has been maintained below the target at 5.2 per cent for 2012-13 and at 4.8 per cent for 2013-14.

Budget 2013-14 promises to adhere to the fiscal deficit roadmap as laid out by the Finance Minister last year. This will boost growth, curtail inflation and help in ratings. Emphasis on agriculture, technology and innovation and science and technology is very welcome as it adds to future growth prospects.

The slide in investments and savings, particularly household savings, would be arrested through targeted measures. Investment allowance of 15 per cent in plant and machinery was a key recommendation from CII and should incentivise corporates to undertake new projects. For savings, positive steps have been taken to encourage household savings in the financial instruments, especially capital markets and low-cost housing. This would add to investible resources, noted the CII press release.

The target of raising nearly Rs 56,000 crore by way of disinvestment is welcome and CII hopes initiatives will be taken to spread the issues throughout the year. Overall, the Finance Minister has done a commendable job in raising revenues wherever possible and allocating the expenditure judiciously.

HM Nerurkar, MD, Tata Steel
Given the global economic scenario, the Union Budget announced by the Finance Minister has made a great attempt to achieve inclusive growth and a sustainable economy. We cheer the thrust given to the infrastructure industry through investment allowance of 15% and various steps for mobilising funds for the growth of the industry.

We also welcome the extension of full exemption from export duty for galvanised steel sheets. This will help the steel industry greatly and enable us to be more competitive in the international market. We are also looking forward to the announcement of a PPP policy framework for increasing production for coal which will help reduce imports and achieve raw material security in the longer run.

However, we are disappointed that the steel industry demands to reduce import duty on iron ore and other raw materials for steel were not met.

Ketan Dalal, Joint Tax Leader, PwC India
The Finance Minister had an extremely difficult task before him, considering the conflicting requirements of the need to raise revenues, comforting both international and domestic investors and the capital market and also bearing in mind that 2014 will be an election year. Overall a very difficult balancing act has been performed reasonably.

The surcharge of 10 per cent on non corporate tax payers, increases the effective tax rate (including surcharge and cess) to 33.99 per centfor incomes above Rs 1 crore (Rs 10 million) from 30.9 per cent currently- this was expected, and one is comforted that the Finance Minister has mentioned that this should be only for the FY 2013-14.

The reference to setting up a Tax Administrative Reform Commission is heartening, but one hopes that something will translate on the ground very quickly.

From an international investor standpoint, the reference to Tax residency certificate being a necessary, but not sufficient, condition for claiming tax treaty benefits is disturbing; while the Mauritius Circular of 2000 has not been expressly withdrawn, this does create significant uncertainty.  Also, the hike in withholding tax rates on royalty and fees for technical services from 10% to 25 per cent is not positive in terms of signals, though, in practice, the tax treaty rates (which are usually between 10 per cent to 15 per cent in most cases), should apply.

Sanjay Sanghvi, Partner, Khaitan & Co
Overall, the theme of the budget is directed towards growth momentum of the Indian economy as a long term measure and also providing stability and certainty of tax laws to boost investors confidence in India as investment destination. Tax on super-rich was perhaps the compulsion on the part of the finance minister to raise additional revenue for the Government to address fiscal deficit problems.  However the increase of surcharge by almost 100 per cent on Indian Corporates as well as foreign companies is something which may not go well with corporate sector.

On more positive note, the Government has deferred applicability of GAAR by two years to 1 April 2016.  One would need to see the fine print of the Finance Bill in terms of the scenarios where GAAR would be applied based on recommendation of Dr. Shome Committee which reviewed GAAR provisions.
 
Richard Rekhy – CEO, KPMG in India
Duly recognising the prevailing fiscal and economic impediments, the FM seems to have lived up to the expectations of India Inc in presenting what can be termed as a popularistic and a rather progressive budget aimed at sustainable growth and economic development for the nation.

Shinjini Kumar, Director, Tax & Regulatory Services, Banking regulations at PwC
It is true that the financial empowerment of women has multiplier effect on the well-being of families and therefore, of the economy. It may also be true that an 'all women' bank will have significantly greater capacity to fast forward this financial access and empowerment. In the context of India's huge burden of poverty, this is a desirable goal and I wish it luck. However, at a more philosophical level, it is hard to support the idea of gender bias, even if it is against men.

Rajashree Nambiar, General Manager - Retail Banking Products & Segments, India & South Asia, Standard Chartered
This is a very pleasant and welcome announcement. I see all positives: firstly, an excellent lever to draw in more women into the organised workforce. More customised and well thought through product offerings to attract/promote women entrepreneurs. Women staff would be more responsive and that should reflect in better customer service levels. And lastly, I am confident that an all women management structure will surely promote a superior culture of ethics and integrity. All in all, a great move and it is for us to leverage the idea well.

Seshagiri Rao, Joint MD, JSW Steel
The budget, with the limited availability of fiscal space, attempted to bring fiscal consolidation with lower fiscal deficit of 4.8 per cent and simultaneously made higher allocations to various schemes to spur investments. Announcing 15 per cent incentive for acquisition and installation of new plant and machinery by manufacturing companies during the period beginning from 1st April 2013 and ending 31st March 2015 is a welcome step to boost the investment. Higher allocation of 29.4 per cent towards plan expenditure and increased outlays for social infrastructure, education, rural development, health and urban development are also expected to stimulate economic activity.
 
As most of the projects are stalled due to regulatory and bureaucratic delays, the expectations from the budget to ease the  process of clearances is not met since the effectiveness of  Cabinet Committee  on Investment is yet to be established. It is a matter of concern that the total non-plan revenue expenditure particularly interest payment and subsidy remain at elevated levels.  It is also challenging to achieve an increase of 19 per cent in tax revenues when the economy is slowing down and there are no immediate signs of recovery. However, lower fiscal deficit, announcement of introduction of DTC bill in this budget session and possible GST rollout are encouraging take outs from this budget.

Jagdish Mahapatra, Managing Director, McAfee India & SAARC
Overall, the Union Budget for 2013-2014 is a realistic one hinged on growth and development oriented expenditure. The focus on technology infusion in agriculture and provisions regarding MSMEs will spur the growth of the economy in the right direction. The budget highlights the need for public sector banks to be compliant with BASEL3 norms which underlines the need for having a robust and connected security framework which can help banks comply with such regulatory norms.  
 
From an IT standpoint, this is a marginally encouraging budget. We were hoping for the discontinuation of MAT on SEZs and apportionment more grants to ensure secure data access which hasn’t been considered. The other disappointing aspect is the surcharge for MNCs in India has increased from 2-5 %, if the taxable income exceeds 10 crores. On the other hand,  the incentives to semiconductor wafer fab manufacturing facilities along with provisioning zero customs duty for plant and machinery is quite positive. In a nutshell, this is only a marginally encouraging budget from an IT industry.
 
Suman Reddy, Vice President & Managing Director, Pegasystems
The overall budget was an attempt to increase investments both domestic and foreign and also increase the revenue by raising the tax implications. Though the finance minister acknowledged the challenges in bringing back the economic growth to 8 per cent, but there were no specific policies and decisions announced which could allow us to grow at that rate. As far as the salaried class is concerned the budget had some good elements such as the decrease in tax implications for interests on housing loans and tax credit of 2000 to the people in the income bracket of 2 – 5 lakh.  Also the initiatives on women development for reducing gender discrimination, infrastructure development initiatives such as roadways in AP are refreshing. However having said that, this budget did not quite answer the expectations of the industry at large as there were no major policies or reforms announced.

From the IT sector’s perspective, we had high expectations from this budget to have some clarity on the transfer pricing and hoped for a structured framework in terms of policies for long term growth of the IT sector. We also had expectations on the infrastructural incentives for early stage startups. Most of these were unanswered in this budget. However the announcement of providing extended benefits for MSMEs upto 3 years of them graduating to a higher category is commendable. Also the policy implementation for considering private sector involvement in a certified institutional incubation center as a CSR activity is appreciated. On the other hand this budget lacked clarity on investment related policies. Though the finance minister mentioned in his speech, the objective of India being recognized as a country favorable for business and acknowledged the areas of concern such as easy policies and simplified regulations to achieve these objectives, there were no definite policy decisions taken on the same which was disappointing. Also there was no clarity on the policy framework for bringing in the FDI and FII

Govind Shrikhande, Managing Director, Shoppers Stop
The Union Budget, which has been built on the pedestals of Inclusive Growth covering education, skill development, Jobs and Income, has good intent and stable measures.

Investments in training and skill development for the youth, women-centric initiatives, Food Security Bill & DCT are in the right direction. No major change in excise duty, service tax & customs duty will maintain retail prices & tame Inflation. The FM aims to spur economic growth through simplification of FII rules, larger sections of society being brought under Insurance coverage, DTC, VDS for Service Tax defaulters, Textile Parks & Apparel Parks, Debt & Infra Bonds etc.

However, we were expecting to hear about a concrete nationwide roll-out of GST.  There has been no relief for retailers on account of service tax on rent. This is a huge deterrent to Retail Industry’s profitability.

No modification in income tax slabs, surcharge on the super- rich, increase in duty on mobiles, marble, cigarettes, A/C Restaurants may impact discretionary spending.

The only evident silver lining for the retail industry is the rolling back of excise duty on Apparel & Made Ups. This is a great relief to retailers and textile industry and will give a fillip to growth of the industry.

Ullas Kamath, Joint Managing Director, Jyothy Laboratories 
Union Budget 2013-14, overall a bold and responsible budget paving way for future economic consolidation. Definitely not a populist budget as generally expected during pre election year.
 
Dr. Raghuraman Rajan, Chief Economic Advisor has carefully managed the expectations and managed to deliver a very commendable budget with conservative approach. His macro economic thoughts, craftsmanship and signature is very visible through the budget. Clear focus on containing the fiscal deficit to 4.8% is good for future economic growth. He has kept most of the tax rate unchanged indicating the strong stability of tax environment in the country barring taxing super rich (Thanks to Azim Premji). Emphasis on continuation of structured reforms are very evident. Effort to contain inflation and reduce the interest cost to drive consumption and overall growth of the economy is very positive.
 
Budget is particularly good for ailing industries like road, power, coal etc. Investment in infra and increase in the personal savings through tax bonds are good growth drivers. Finally, one big question: How will be PM create jobs for 1 Crore Indian Youth every year? No clear answer.
 
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Dhananjay Datar, Executive Director and Group Chief Financial Officer of ABG Shipyard 
We welcome the move to remove the excise duty of 2% on ships and vessels. Consequently, there will be no CVD on imported ships and vessels. This is looked upon as a positive approach by the govt for the shipbuilding sector. Also, the 300 cr overall subsidy which when released will increase the cash flow.

P. Nandagopal, MD & CEO, IndiaFirst Life Insurance
It is a positive budget from the insurance and BFSI perspective. On the big picture, the investments in education, skill development, infrastructure and rural development will have positive impact on the life insurance demand. On the specifics, while there're no additional tax concessions as expected, the big announcement is the proposed open architecture for bancassurance through the broking route. In the long term, this would deepen the distribution reach of the banks in offering a wide range of insurance products. We need to check the details and also take steps to see the broking model does not result in excess distribution costs for the insurance companies which are already reeling under the pressure of thinning margins.

Sunil Khanna, President & MD, Emerson Network Power

The commitment to bring about constitutional reforms in GST is a positive sign. The Finance Minister’s initiative to set apart Rs 9,000 crore towards GST compensation will encourage the states to get on board with GST and hasten reforms. Another welcome aspect is no change in the normal rate of excise duty coupled with revival of investment in manufacturing sector which has been reeling under inflationary pressures. Setting up of a Cabinet Committee on Investment (CCI) to monitor investment proposals and ongoing projects, remove bottlenecks, review stalled projects and improve public-private partnership is welcoming. The budget has also taken growth inducing measures such as encouragement of IDFs and additional investment into industrial corridor projects and JNNURM which are positive signs for the sector. The proposal to introduce 15% investment allowance for high value investments in plant and machinery, and new incentives for renewable energy projects will help the industry keep pace with rapidly changing technology. Overall, it’s a relatively measured budget focussing on fiscal consolidation.

Aditya Bafna, Executive Director, Shree Shubham Logistics
Given the challenges faced at the macro-economic level, we would like to appreciate the efforts of the finance minister in delivering a pragmatic budget. With a special emphasis on agriculture sector, including a guarantee of Rs. 5000 crore given to NABARD for creation of additional warehousing facilities will be beneficial for the sector.

However, we feel that the funding would be given directly by NABARD.

The removal of service tax on testing of agricultural produce will benefit farmers in a huge way as this would help in reduction of the cost for farmers, who want to test their produce and will lead to creation on larger testing facilities for the agricultural producers.

The interest subvention for famers is yet another positive move by the finance minister as this will help the farmers raise money against authorized WDRA (Warehousing Development and Regulatory Authority) receipts.

Keeping agricultural commodities out of CTT (commodity transaction tax) will lead to an increased trading in these commodities which may lead to better price realisation for the farmers.

We are also hopeful of the impetus to the agriculture sector with the enhancement of agriculture credit to Rs. Seven lakh crore.

Subhrakant Panda, Indian Metals & Ferro Alloys
Overall it is a pragmatic budget where the Finance Minister has tried to balance the need to boost growth with prudent fiscal policies. But it would have been nice to see some directional guidance / movement towards bold reforms. There is a stated intent to boost manufacturing growth but no significant measures have been taken beyond an additional investment allowance of 15 per cent for capex of Rs 100 crore and extension of 80 IA benefit for power plants for one more year. It may be too much to expect being the last full budget before elections but an emphasis on big ticket reforms would have been very welcome. Also, the importance of infrastructure was mentioned but no significant measures have been taken in this regard although there are some positive indicators.

I would rate the budget 6.5 out of 10 - perhaps slightly understated because one expects more from P Chidambaram
 
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Pramoud Rao, Managing Director-Promoter, Zicom Electronic Security Systems
It is not a flamboyant or even a populist Budget, as many would have expected, for the simple reason that early next year the country goes for the General Elections and Finance Minister P. Chidambaram’s chief concern seemed to be reducing fiscal deficit than curbing inflation. There was also not much for the capital markets to rejoice even though the FM indicated that he was looking for growth and looking forward to attract capital and investment in roads, highways and ports etc. The FM also thinks that inflows of funds are crucial as the country needs $75 billion during the fiscal year.

One good thing is that the FM has thought about the country’s security and raised defense allocation from last year’s Rs 1.93 lakh crore to Rs 2.03 lakh crore. Another good thing is that there is no raise in excise and customs duty which has been impacting the Rs 11,000 crore security industry. While thinking about country’s defense the FM could have also given a thought to the security of the society and created some sops for the electronics security industry, which is growing at a high rate, but is still not getting the attention it deserves and pays high taxes and duties on imports of electronic security equipment. One would have also expected tax holiday for our industry and some kind of impetus to start manufacturing units within the country.

Vineet Agarwal, Joint Managing Director, TCI
The Union Budget 2013-14 presented today has not triggered much of an excitement for the logistics sector. Though the commitment of the Minister to ensure fiscal prudence of the economy is positive for the economy the demands of logistics sector has been met partially.

The budget is silent on the long pending demand of the logistics sector for the industry status for easier access to finance, robust regulatory mechanisms and a better image. Also, no move on the separate regulatory authority for the sector to ensure better coordination between ministries for an integrated policy on the sector is a disappointment.

There has been no change in peak custom and excise rates, which will further delay the industry recuperation that has been a victim of lack of critical sops in previous budgets. We are hopeful that the Finance Minister will stick to his promise to present the draft bill on GST in the parliament in next few months to enable the creation of the common market to permit free and unimpeded movement of goods and services across the country.

Also, I would like to welcome the Finance Minister’s move on promoting of manufacturing of electronic goods in India under The National Electronics Policy 2012. The proposal of introducing an investment allowance of 15 per cent will surely attract new high value investments. This will benefit small & medium enterprise. It’s quite encouraging to see FM’s proposal on enhancing the refinancing capability of SIDBI from the current level of 5,000 crore to 10,000 crore per year. One would have also expected tax holiday for our industry and some kind of impetus to start manufacturing units within the country.

Ravi Goel, Co-founder and Director of Ecomantra
Finance Minister P. Chidambaram has maintained the status quo from the tourism point of view.

Double taxation still exists. We pay luxury tax, sales tax, service tax and the GOI tax is on an average 50 per cent to 200 per cent higher than the actual owners net profit, making tourism in India an expensive product. This causes mid-market tourists (that are usually the most profitable) to visit SE Asia which has better products at lower price points.

New projects arent coming in because of 15 per cent prevailing interest rates, which is higher than the 8 per cent to 12 per cent EBIDTA on new resort projects thus making the project unviable. If you still borrow at these interest rates and manage to complete a project, then you end up selling a product that is more expensive than similar tourism experiences in SE Asia, thereby causing the Indian traveller to spend their tourism dollars in these countries as against in India. Plus, these countries have infrastructure which is way superior, resulting in a much better experience at lower prices.

So how do you grow captive domestic tourism at a higher pace? After all, domestic tourism is going to become the biggest employer in India within the next decade leading to more inclusive growth. Instead of encouraging the SME enterprises, the budget is giving sops to Rs 100 cr-plus projects only! The biggest tourism players like the Tatas aren’t investing in even established zones like Mahabaleshwar and Lonavala because of poor average occupancy. The Oberois aren’t even interested in investing in India anymore. They will only come in once the smaller sub-100 cr investors pave the way for them! So why isn’t the Finance Minister encouraging the SMEs in tourism?
 


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