Saturday, March 1, 2008

Analysis of Union Budget 2008- 09

Introduction

The Finance Minister Mr. P. Chidambaram unveiled the much-awaited Union Budget for FY 2008-09 in the parliament on February 29, 2008. India for 12 successive quarters till December 2007 has registered a growth of over 8%. In the first half of 2007-08, the economy saw a growth of 9.1%. India primarily being an agrarian economy saw a disappointing growth in agriculture at 2.6% in the first half of 2007-08. The Eleventh Plan has started on a positive note registering robust growth as the first year of the plan saw a GDP growth for the current fiscal at 8.7%. The drivers of growth continue to be services and manufacturing, which are estimated to grow at 10.7% and 9.4%, respectively. The Gross Budgetary Support is expected to increase by Rs. 38,286 crore over the allocation in 2007-08 at Rs. 2,43,386 crore. Foreign direct investment and foreign institutional investment between April-December 2007-08 stood at USD 12.7 billion and USD 18 billion respectively. Tax to GDP ratio is set to increase from 9.2% in 2003-04 to 12.5% in 2007-08. There was no change seen in the peak rate of customs duty.

The budget was one of the best budgets ever seen by individual taxpayers. The special feature of this budget has obviously been the hike in basic exemption limit to Rs. 1,50,000. For women the exemption limit has increased to Rs. 1,80,000 and for senior citizens to Rs. 2,25,000. The new slab rates will bring in a lot of saving for the individual taxpayers. On the other hand, the corporates did not have much to look up to in this year’s budget. The finance minister kept both corporate tax and surcharge rates unchanged.

In the eleventh five year plan, the government has taken some concrete steps towards illiteracy, education, rural development including agriculture, infrastructure, health, employment, drinking water facility and sanitation. Major concern that the government would be facing in the coming year is inflation. A rise in the disposable income of the citizens due to reduction in the tax slab and cut in the excise duty of various items might lead to a rise in the disposable income. This would cause the demand to rise further leading to inflation. The finance minister said that the Indian government will have to collaborate with the Reserve Bank of India in order to combat the inflationary pressures to be faced in the near future.

Economy

The economy has recorded a growth rate of over 8% in 12 successive quarters upto December 31, 2007. In the current year too, according to the Advance Estimates by the CSO, the growth rate will be 8.7%. The drivers of growth continue to be services & manufacturing which are estimated to grow at 10.7% & 9.4% respectively. But, there is disappointment from agriculture sector. The growth rate for the whole year in agriculture is estimated at only 2.6% despite a fine start in the first half of FY08. However, the Ministry of Agriculture has estimated the total output of food grains in FY08 will be 219.32 million tonnes, an all time record. As such, FY08 has been the most challenging year out of the last four years due to considerable turbulence that witnessed in the developed countries & which not yet finished. Other external risks are surging oil & commodity prices and heavy capital inflows, in excess of current account deficit, that poses a challenge to monetary management. However, the government was able to keep inflation under control. The inflation that measured by the wholesale price index (WPI), year-on-year stood remained below 4% since mid-August 2007 for 23 consecutive weeks, before inching up to 4.1% in the last 3 weeks.

Tax Payer

There has been no change in the rates of personal income tax. However, certain amendments have been made to enhance the saving options for an individual. The threshold limit of exemption in the case of all assessees has been increased by Rs.40, 000, thus giving every assessee a relief of Rs. 4, 000. Consequently, in the case of a woman assessee, the threshold limit is increased from Rs.1,45,000 to Rs.1,80,000, giving her a relief of Rs.3,500, the threshold limit of exemption in the case of a senior citizen is increased from Rs.1,95,000 to Rs.2,25,000, giving him or her a relief of Rs.6,000. An additional deduction of Rs.15, 000 allowed under Section 80D to an individual paying medical insurance premium for his/her parent or parents. There is no change in the corporate income tax rate and also in the rate of surcharge.

Applicable Tax Rates:


(i)For persons other than women below 65 years of age and senior citizens


Upto Rs.1,50,000
NIL
Rs.1,50,001 – Rs.3,00,000 10%
Rs.3,00,001 – Rs.5,00,000 20%
Rs.5,00,001 and above 30%

(ii) For women below 65 years of age


Upto Rs.1, 80,000
NIL
Rs. 1,80,001 – Rs. 3,00,000 10%
Rs. 3,00,001– Rs. 5,00,000 20%
Rs. 5,00,001 and above 30%

(iii) For Senior citizens i.e. person 65 years and above of age


Upto Rs.2,25,000
NIL
Rs. 2,25,001 – Rs. 3,00,000 10%
Rs. 3,00,001 – Rs. 5,00,000 20%
Rs. 5,00,001 and above 30%

Stock Market Negative

The Indian markets opened lower at 17,779.54 down by 44.94 points tracking weak global cues as Asian markets were trading in red with the exception of Shanghai Composite. The market sentiments were lowered at the onset of the session as investors were in wait-n-watch mood for budget and on news that Citigroup India arm is on cost cutting exercise after feeling the pinch of sub prime losses. The market was cautious ahead of budget but slipped during noon time as FM started its budget session. The markets reacted to the budget negatively and headed down till mid afternoon due to hike in short term capital gains tax and levy of STT on commodities derivatives. Selling was seen across the board with Capital Goods, IT and Consumer Durables, Realty and Power down by over 2% while Auto, Bankex, FMCG and Health Care closed positive. However, the broader markets seemed to recover during mid afternoon from its intra day lows but again slipped into negative territory to close the day down deep in red at 17,578.72 down by 245.76 points 1.38%.

Commodity Market Negative

Industry Wish-list

  • FIIs and DFIs should be allowed to participate in commodity derivative. This will not only give much needed depth to market but also facilitate wider participation and development of commodity market in India.
  • Development of warehouse is essential for the development spot market and will bring more transparency and liquidity in the market. Thus, warehouse development should be given infrastructure status.
  • Ban on futures trading of wheat, rice, tur and urad should be lifted.
  • Penal provisions against hoarders and black marketers should be made stricter.
  • Client-wise limits in both agri and metals are too small and the same should be increased, so that the real producers and consumers can hedge effectively. Further, Clients should also be allowed to offset profit and loss against normal business income.

Budget Measures
A new tax called Commodities Transaction Tax (CTT) is proposed to be levied on taxable commodities transactions entered in a recognized association.

Taxable commodities transaction Rate Payable by

Sale of an option in goods or an option in commodity derivative.

0.017 per cent on option premium Seller

Sale of an option in goods or an option in commodity derivative, where option is exercised.

0.125 per cent on the settlement price of the option. Purchaser

Sale of any other commodity derivative.

0.017 per cent of the price at which the commodity derivative is sold. Seller

Impact

Commodities Transaction Tax (CTT) will bring pain in the commodities future trading. It will put pressure on profit margins of market participants and thus, may result in fall of volumes.

Foreign Investment

Foreign Institutional Investments (FII):

Larger inflows from Foreign Institutional Investors (FIIs) in the secondary market segment has largely contributed to BSE and NSE indices scaling new peaks of 21,000 and 6,300, respectively, in January 2008. The number of registered FIIs has increased from 993 by the end of December 2006 to 1219 by the end of December 2007, registering a growth of 22.76% y-o-y. An analysis of the monthly data on net FII inflows released by the Securities and Exchange Board of India (SEBI) indicates volatility. The standard deviation of the net inflows under FII was very high (USD 2,423.4 million) in the 12 months ending December 2007. The same measure for 24 months ending December 2007 yielded a somewhat lower (USD 1,882.8 million) dispersion. This increased volatility has affected the flow of portfolio investment. Net portfolio investment inflow was USD 18.3 bn in April-September 2007, more than double the inflow during 2006-07. Underlying these were gross inflows of USD 83.4 bn and outflows of USD 65 bn. Increase of short term capital gain tax to 15% may discourage the FIIs ti invest for short term as it adds to their cos.t

Foreign Direct Investment (FDI):

During April-November 2007, FDI equity inflows stood at Rs.45,098 crore (US$ 11.14 billion) against Rs.33,030 crore (US$ 7.23 billion) during April-September 2006, signifying a growth of 36% in terms of rupee and 54% in terms of US dollar.

Of the total FDI received, about 53.57% came through the automatic route of the RBI, while 20.15% came through the Government approval route and the rest in the form of acquisition of existing shares. Among the destinations of FDI inflows, Mumbai, New Delhi, Bangalore and Chennai maintained the first four positions in that order. During August 1991 to November 2007, India received 7,898 approvals for foreign technology transfer, of which 81 were obtained during 2006-07 and 52 during April-November 2007.

FDI Policy

Several steps have been initiated to facilitate FDI inflows which, among other things, include: raising the equity cap in civil aviation; organizing Destination India events in association with CII and FICCI with a view to attract investments; activating the Foreign Investment Implementation Authority (FIIA) towards speedy resolution of investment-related problems; setting up of National Manufacturing Competitiveness Council (NMCC) to provide a continuing forum for policy dialogue to energize the growth of manufacturing; regular interactions with foreign investors through bilateral/regional/ international meets and meetings with individual investors; and making the website of the Department of Industrial Policy & Promotion (www.dipp.nic.in) more user-friendly with online chat facility. About 4,500 investment-related queries have been replied during 2007-08.

Industry

The first eight months of the current fiscal, till November 2007, witnessed a moderate slowdown in the growth of the industrial sector. The slowdown has mainly been on account of the manufacturing sector. The budget 2008-09 seems to be a mixed bag for the industry with some positive and some not so positive changes brought about and the focus remained on agriculture, power and education sector. No change in corporate tax and in rate of surcharge on tax largely remained neutral. A reduction in Central Sales Tax from 3% to 2% and reducing the general CENVAT rate on all goods from 16% to 14% were among the positives for the industry.

In spite of the fact that the budget has given immense focus on social and agriculture sector, which may have a trickle down effect across various industries of the economy, the performance of the industry is expected to remain buoyant for the FY–09 with "services" and "manufacturing", which are estimated to grow at 10.7% and 9.4%, respectively supported by 7.2% increase in per capita income. Four new services have been brought under tax net which might affect Stock and commodity exchanges, Clearance houses, customized software makers, AMCs managing Ulips. 55% of the GDP is contributed by services sector, which is a growing sector. We have witnessed a robust growth in the economy. The only concern being inflation, an increase in the investment rate would point towards bright future prospects for overall industry growth.

Auto Ancillary Neutral

Issues and Industry demands

  • Removal of inverted duty structure on some components.
  • Reduction in excise rates in view of rising FTAs with other nations.
  • Maintain the current peak duty and increase in import duties on specific products, where there is a threat from imports
  • Extension of weighted average deduction upto 150% till 2012.

Measures

  • Customs duty on steel melting and aluminum melting scrap reduced from 5% to 0%.
  • Reduction in excise duties in select segments of automobiles.
  • World-class skill development programme to be launched.

Impact

Auto Ancillary is highly skill demanding sector. Skill development programme will help meeting the shortage of skilled manpower. Reduction in custom duty on steel melting and aluminum melting scrap might reduce the input cost for some of the component manufacturer. Cut in excise rate in on automobiles too will benefit the sector on increase in demand of the automobiles. The major beneficiaries are Amtek auto and Bharat Forge.

Automobile Positive

Issues and Industry demands

  • Excise duty to be reduced to 16% on all cars (Currently it is 16% on small cars & 24% on others).
  • Small car to be defined in relation to its length only, instead of length and engine.
  • Excise duty on Commercial vehicle (Bus) to be reduced from 24% to 16%.
  • Excise duty on Two & Three Wheelers to be reduced from 16% to 8%.

Measures

  • Excise duty has been reduced on: Small cars from 16% to 12%, Hybrid cars from 24% to 14%, Electric cars from 8% to nil.
  • Specified parts of electric cars from 16% to nil on end-use basis.
  • Buses and other vehicle for transport of more than 13 persons from 16% to 12%, and on the chassis of such vehicles from ‘16% +Rs.10,000/-’ to ‘12% +Rs.10,000/-‘.
  • Two-wheelers and passenger three-wheelers (upto 7 persons) from 16% to 12%.

Impact

The budget impact is positive for the industry. Most of the industry’s issues have been addressed in this budget by slashing the excise duty to the desirable level. Two & Three wheeler sector was struggling with the declining trend in growth in past few quarters because of the strict credit lending by the financial institutions. Also, pinch in profit margin has been experiencing due to rising cost. The cut in excise duty will help the manufacturers to tackle the margin pressure and able to increase sales growth by reducing the price of the vehicle. Hero Honda, Bajaj Auto, TVS Motors, Kinetic Motors Ltd. and LML Ltd. are the beneficiary.

In Passenger vehicle category reduction in excise duty on small car, that constituted 70% of this category, will boost sales as vehicle manufacturer may slash price to garner more market share or atleast to maintain the existing market share. On the other hand, incentive through excise rate cut on Hybrid & Electric car will help to promote these environment friendly vehicles. Maruti Suzuki India Ltd. and Tata Motors are the major beneficiary.

Excise cut on buses for transport of more than 13 person and on the chassis will majorly benefit Tata Motors, Ashok Leyland, Swaraj Majda, Eicher Motors and Force Motors.

Banking Neutral


Issues and Industry Demand

  • Re-introduction of tax concession on interest earned on infrastructure loans u/s 10(23G) of Income Tax Act, 1961.
  • Bank deposits should be brought under section 80 L for income tax deductions.
  • Relaxation in lock in period for savings u/s 80C from 5years to 3 years, which will increase attractiveness of term deposit.
  • Increase in ceiling of Rs 15,000 for TDS on interest earned on bank fixed deposits.
  • Sec 36 (1) (VIIA) and sec 43 (D)- RBI norms allows banks deduction on provision made for all grades of assets but IT department allowed only on bad and doubtful debts.
  • Simplification of service and fringe benefit tax norms
  • Perpetual non-cumulative preference shares to be included in Tier-I capital and redeemable cumulative preference shares to be included in Tier-II capital in order to improve CAR.
  • Increase the FII/ FDI limit in PSU banks from 20% to 49%.
  • Further liberalization of directed lending norms.
  • Levy of BCTT (banking cash transaction tax) should be made applicable only in those cases where people buy drafts from banks without quoting their Permanent Account Number (PAN). All other assesses should be outside the purview of this levy.
  • Allow another round of VRS and more power to attract suitable talent in PSU banks.

Measures

  • PSU banks and regional rural banks (RRBs) to offer debt waiver on all agricultural loans disbursed upto March 2007 and due until the end of December 2007. The total value of relief to be offered to farmers is estimated at Rs 60,000 crore.
  • Advise commercial banks including RRBs, to add at least 250 rural household accounts every year at each of their rural and semi-urban branches.
  • Allow individuals such as retired bank officers, ex-servicemen etc to be appointed as business facilitator or business correspondent or credit counselor.
  • Encourage banks to embrace concept of Total Financial Inclusion to meet the entire credit requirements of SHG members.
  • Creation of fund of Rs.5,000 crore in NABARD to enhance its refinance operations to short term cooperative credit institutions.
  • Creation of two funds of Rs.2,000 crore each in SIDBI - one for risk capital financing and other for enhancing refinance capability to the MSME sector.
  • Creation of fund of Rs.1,200 crore in NHB to enhance its refinance operations in the rural housing sector.
  • Parent company allowed to set-off the dividend received from its subsidiary company against dividend distributed by the parent company.
  • BCTT being withdrawn with effect from April 1, 2009.
  • PSU banks under the Differential Rate of Interest (DRI) scheme lend up to Rs 20,000 per unit at an interest rate of 4%.

Impact

Reimbursement by the government for loan waiver of farmers of Rs.60,000 will be in 3 years have a neutral impact on PSU banks as they will be able to write off these loans & show a cleaner balance sheet in 2009. But, PSU banks are expected to face pressure on their net interest margins until the subsidy for waiver of agricultural loans and one time settlement of loans is released from the government. The cost of adding more rural households in their rural branches may increase the operating cost for the PSU banks. Whereas, banks that receive dividend from their subsidiaries will benefit from the set off of dividend distribution tax & the creation of fund in NABARD, SIDBI & NHB and withdrawn of BCTT are the favorable steps. However, no measures were taken to comply with Basel II guidelines as PSU banks need huge cheap capital but stringent restrictions on FII/FDI participation & structural hurdles like restrictions on capital availability (due to high government ownership), restrictions on credit deployment and restrictive labour laws, weak corporate governance have impaired the ability of public sector banks.

Cement Negative

Issues and Industry demands

  • Reduction of Central Levies and Excise Duty, which constitutes over 60% of the ex-factory price of cement.
  • Abatement of 35%-55% on Excise Duty.
  • Reduction of VAT on cement and clinker from existing 12.5% to 4%.
  • Abolition of 5% Import Duty on coal and pet coke.
  • CVD be re-imposed to the extent of Excise Duty on cement imports.
  • Reduction in royalty on limestone, currently at Rs 67/tonne.
  • Supply of fly ash to cement firms at no cost.
  • Greater emphasis on Housing and Infrastructure.

Measures

  • Excise Duty on clinker increased to Rs 450/MT from Rs 350/MT.
  • Excise Duty on bulk cement at Rs 400/MT or 14% in proportion to the estimated value of the cement, whichever is higher.

Impact

The Union Budget did not meet any of the cement industry-specific demands. The industry had expected some rebates on taxes as cement is one of the heavily taxed items but that did not come in the budget. On the contrary, a Rs 100/MT increase in the Excise Duty on clinker might effect sale of clinker and might squeeze the margins of cement companies. The Excise Duty on bulk cement at Rs 400/MT or 14% whichever is higher, will have a negligible impact as bulk cement does not constitute more than 2% of the overall demand. But an emphasis on power, housing, infrastructure, rural spends and overall economic growth has brought in expectations of a demand boost as the industry is positively co-related with economic growth.

Engineering Positive

Industry Wish-list

  • CVD on imports of power equipment and other inputs should be reduced from 16% to 8% and custom duty from 10% to 5%.
  • Custom Duty on transmission and power equipments for UMPP projects should be lowered.
  • Dividend Distribution Tax on distribution of profits should be abolished.
  • Excise duty on power equipment and other inputs should be reduced from 16% to 8%
  • To ensure availability of sufficient funds, lending to power sector should be included under priority sector and further, ECB norms for UMPP should be relaxed.
  • MAT should be removed or reduced.

Budget Measures

  • Rs.800 cr allocated for the Accelerated Power Development and Reforms Project in 2008-09
  • Rajiv Gandhi Grameen Vidyutikaran Yojana to continue during the Eleventh Plan period with a capital subsidy of Rs.28,000 cr. Rs.5,500 cr has been allocated for the Yojana (including NER) in 2008-09.
  • Creation of national fund for transmission and distribution reform
  • Exemption from additional duty of customs of 4% levied under section 3(5) of Customs Tariff Act, 1975 has been withdrawn from power generation projects (other than mega power projects), transmission, sub-transmission and distribution projects, and goods for high voltage transmission projects.
  • 10% increase in Defence allocation from Rs.96,000 cr to Rs.105,600 cr
  • Fourth Ultra Mega Power Project (UMPP) at Tilaiya will be awarded shortly. And remaining five UMPPs in Chhattisgarh, Karnataka, Maharashtra, Orissa and Tamilnadu pushed to bring under bidding stage provided the States extend the required support.

Impact

Government’s thrust on power reforms augurs well for the sector. Setting up of T&D fund, continuance of RGGVY, greater focus on UMPP, higher allocation on Defence along with removal of exemption are the key positives to take from the Budget 2008-09. Given the 78,577 MW power generation target with the aforesaid development, we remain positive on power sector as whole and thereby on capital/engineering good. Greater thrust on power generation, removal of exemption from additional customs duty on power generation, transmission and distribution projects and higher defence expenditure will benefit BHEL, L&T, TATA Power and Reliance Enegry. Development in T&D sector will benefit ABB, Siemens, Areva T&D, Indotech Transformer, EMCO, Bharat Bijlee, Jyoti Structures and Kalpataru Power etc.

Fertilizer Positive

Issues and Industry demands

  • Withdrawal of basic customs duty of 5% on LNG, ammonia, phosphoric acid, rock phosphate and sulphur.
  • Support from the government to facilitate basic raw materials at reasonable rate and inputs should be exempted from state level VAT and the service tax.
  • Capital subsidy scheme for conversion of Fuel Oil/ LSHS based urea plants to gas under the policy for Stage III of the NPS should be announced.
  • Benefit of tax holiday for a period of 15 years should be extended to all future fertilizer projects to attract investment.
  • Withdrawal of basic excise duty of 16% on fuel oil/LSHS and ensure availability of gas.

Measures

  • Customs duty exemption on Naphtha withdrawn, except for that used for making fertilizers.
  • Customs duty on crude and unrefined sulphur has been reduced from 5% to 2%.
  • Customs duty on phosphoric acid cut to 5% vs. 7.5%.
  • Smart card facility for fertilizer subsidy distribution.
  • Government offered nutrient based fertilizers subsidies scheme.
  • Scheme of debt waiver and relief for small and marginal farmers.
  • Agriculture credit target at Rs 2,80,000 cr in FY 08-09
  • Irrigation resources finance to have Rs 100 cr capital.

Impact

The cut in customs duty for the key inputs provide needed relief to the domestic fertilizer sector in the budget. The major problem of the sector is imbalanced fertilization and also delays in subsidy disbursement which has discouraged new investment in the sector. Thrust on improving subsidies and increase in farm credit will lead to increase in the demand for fertilizers. Increase in demand will help fertilizer companies to improve its margins, as is likely to pass directly to farmers. Overall, the Budget is positive for the fertilizer sector.

FMCG Neutral

Issues & Industry demands

  • The excise duty on Packaging material should be slashed.
  • The excise duty on Soap & detergent is 16% which should be streamlined.
  • Biscuit industry stipulates full exemption in excise duty from 8% on biscuits with retail prices above Rs 100 per kg.
  • Also reduction of VAT to 4% from 12.5% as biscuits industry (along with cigarettes and pan masala) is the only exception among all processed foods categories on which a 12.5% VAT is levied.
  • Excise duty on Ayurvedic product should be abolished from present level of 4%.
  • The import duty on Palm oil should be reduced from current level of 46%.
  • Rationalization of Fringe benefit tax imposed on the sector is demanded.
  • Convergence of multiple taxes levied on the sector, like excise duty, sales tax and VAT is anticipated.

Measures

  • Reduction in excise duty from 16% to nil on tea and coffee mixes.
  • Customs duty on bactofuges has been reduced from 7.5% to Nil.
  • Customs duty on feed additives/pre-mixes has been reduced from 30% to 20%.
  • Customs duty is being reduced on vitamin premixes and mineral mixtures from 30% to 20% and on phosphoric acid from 7.5% to 5% to reduce cost of manufacture of dairy and poultry feeds
  • Excise duty on packing paper has been reduced from 12% to 8%.
  • Excise duty on pan masala, not containing tobacco, with betel nut content not more than 15%, has been reduced from 16% to 8%. It has also been exempted from National Calamity Contingent Duty.
  • Excise duty on ink for writing instruments such as white board markers, highlighter pens, paint markers, magic pens etc is being reduced from 16% to 8%.
  • Menthol is fully exempted from excise duty.
  • Rs.40 crore in 2008-09 is provided for Special Purpose Tea Fund for re-plantation & rejuvenation and similar support to cardamom, rubber & coffee is also given. Crop insurance scheme for tea, rubber, tobacco, chilli, ginger, turmeric, pepper and cardamom is to be introduced.

Impact

Exclusion of tea & coffee from excise duty will not only benefit consumers but also to the companies like ITC, HUL, Tata Tea, Tata Coffee, Nestle, etc. Cutback in the custom duty on bactofuges and phosphoric acid is going to promote dairy as well as poultry industry.
Packaging materials is one area where most FMCG companies had expectations from the budget. The reduction in the excise duty of packaging paper would drive growth in the processed foods and personal care segments. There was also expectation for decrease in the fringe benefit tax (FBT) by FMCG companies as they have to incur a lot of expenses on travel, product sampling and product promotion as a part of their operations. However there is no positive change regarding the same.Though the measures taken in the budget bring some positive sentiments in the sector but they are not completely meeting the expectation of the industry.

Food Processing Neutral

Industry Expectations

  • The industry is expecting nil excise duty on syrup of fruits, masala milk and mixed condiments & mixed seasoning as these attract an excise duty of 16%.
  • The industry anticipates excise duty on products, falling under chapter 17, 18, 19, 21 and 22, should be condensed to 8% from 16%.
  • Excise duty to be reduced to 8% from 16% on products like chewing gum, jelly confectionery toffees & caramels, chocolate & other food preparations containing cocoa, malted food for other than infant use, prepared food by swelling or roasting of cereals or cereal products, wafer having chocolate, instant coffee & tea and mineral/aerated water.
  • To slash excise duty on packaging of processed food to 8% and custom duty on truck refrigeration should be brought to nil from current level of 7.5%.
  • Biscuit industry anticipates a cut down in the VAT from 12.5% to 4%.

Measures

  • Excise duty has been fully exempted on:
    • Packaged tender Coconut water
    • Paws, mudi (puffed rice) and the like
    • Milk containing edible nuts
    • Tea/ coffee pre-mixes
  • Excise duty has been fully exempted on specified refrigeration equipment for the installation of a cold storage, cold room or refrigerated vehicle, on end-use basis.
  • Excise duty has been reduced from 16% to 8% on
    • Muesli, corn flakes & similar breakfast cereals
    • Sharbats
    • Packaging material viz.:
      • Open Top Sanitary (OTS) cans
      • Aseptic packaging paper
      • Aseptic bags
    • Water purification devices and specified packaging material.
  • CENVAT has been reduced from 16% to 14%.
  • Central Sales Tax rate is being reduced from 3% to 2% from April 1, 2008.

Impact
The reduction in excise duty in case of some packaging materials will provide thrust to packaging segment.

Reduction in excise duty on above mentioned items would lead to reduction in their cost and stimulate demand.

There were no specific incentives given for the food processing industry and as such it was a bit disappointing. However, the cut in overall CENVAT rates and reduction in Central Sales Tax will reduce the input cost for the industry.

Infrastructure Positive

Industry Wish-list

  • Benefit under Section 80 IA should be restored and extended for another ten years after 2009.
  • To ensure availability of necessary funds for infrastructure development, the limit of maximum investment to claim deduction u/s 54EC of the I-T (long term capital gain tax) should be lifted from current Rs.50 lakh per investor per year. Further, Pension fund should be allowed to invest in infrastructure projects and also the ceiling of $20mn ECB for infrastructure projects should be lifted.
  • Current cap of Rs.1 lakh for deduction u/s 80C should be increased to Rs.2 lakh, with a condition to invest this additional Rs.1 lakh in shares or debentures of infrastructure companies.
  • The Basic Custom Duty (BCD) rate under project import benefit should be reduced to 5% from 7.5%. Further, the umbrella of project import benefit should be broadened to include all railway modernization or renovation projects.
  • In order to boost imports of superior capital goods and latest technology, all road development projects undertaken by NHAI should be totally exempted from Custom Duty.
  • Service tax on all the inputs, consumed by infrastructure companies should be exempted.
  • Implementing the recommendation of Dr R H Patil and Dr Deepak Parekh Committee on creating long-term corporate debt markets.
  • Higher budgetary allocation for the infrastructure sector programme like NHDP, Bharat Nirmaan etc.
  • The current viability gap funding (VGF) limit should be increased from the current 20% to 30%.
  • Reintroduction of tax sops on infra-funding under section 10(23G)

Budget Measures

  • Allocation to Bharat Nirman budget increases to Rs.31280 cr from Rs.24603 cr
  • NHDP allocation rises to Rs 12,966 cr from Rs 10,866 cr
  • 300 kms of road construction is targeted in 2008-09
  • Rural Infrastructure Development Fund (RIDF-XIV) corpus raised to Rs14,000 cr, with a separate window for rural roads.
  • 24 major and medium irrigation projects and 753 minor irrigation schemes with an outlay of Rs.20,000 cr against Rs.11,000 cr in 2007-08.
  • The general CENVAT rate has been reduced to 14% from 16%.

Impact

Higher allocation to Bharat Nirman, increased focus on NHDP & irrigation augurs well for companies engaged in infrastructure especially companies which are involved in road construction and BOT irrigation projects such as as Jain Irrigation, Madhucon Projects, NCC, HCC, IVRCL and Gammon India. Further, reduction in CENVAT will be a key positive for the sector.

InformationTechnology Positive

Issues and Industry demands

Software

  • Extend the software technology park of India scheme and tax incentive under section 10A/10B till 2019.
  • Refund of service tax paid on services utilized for export of computer software and BPO services.
  • Advance Pricing Agreements (APA) on issues like transfer payment to provide upfront tax certainty.
  • Relevant provisions need to be incorporated in the domestic law to provide a mechanism for allowing full credit for foreign taxes paid.
  • Broaden the eligibility criteria for Large Tax Payer Unit (LTU) scheme.
  • Reduction in Dividend Distribution Tax from 15% to 12.5%

Hardware

  • Waive off central sales tax (CST) on all IT products.
  • Various service sectors which are large PC consumers but do not currently qualify for the beneficial rate of 3% CST to be allowed the benefit.
  • Maintain status-quo on IT products in tax structures, including the continuance of a reduced excise duty of 12% on PCs.

Measures

  • Customs duty on specified convergence products has been reduced from 10% to 5%.
  • Customs duty on specified raw materials and inputs for use in IT/electronic hardware industry has been reduced from 10%/7.5% to Nil, on end-use basis.
  • Allocation to be enhanced to Rs. 1,680 crore in 2008-09.
  • Excise duty has been reduced from 16% to 8% on specified convergence products.
  • Excise duty has been increased from 8% to 12% on packaged software.
  • To allot Rs. 100 cr to IT ministry to link knowledge institutions.
  • Three new IITs to be set up in Andhra Pradesh, Bihar and Rajasthan.

Impact

No extension was given to the STPI scheme which disappointed the IT industry. Few IT, hardware components have been exempted from customs duty this budget. Focus on education will also have positive impact on companies like NIIT, Aptech and Eudocom. The imposition of service tax of 12% on customized software and higher excise duty on packaged software could lead to increased cost of IT and could slowdown the IT usage in the domestic sector. IT-BPO industry which is a talent and skilled based industry might get benefited by primary and higher education and skill building initiatives.

Media and Entertainment Positive

Issues & Industry demands

  • Excise duty on Set Top Boxes should be reduced from 16.5% to 12%.
  • Fringe benefit tax should be reduced or rationalized.
  • Waiver of Service tax on lease rentals for multiplex as these would reduce the rentals.
  • Service tax of 12% is levied on ad sales for TV and Radio companies should be reduced.
  • Scrapping of entertainment tax or exemption from VAT.

Measures

  • Customs duty on specified parts of set-top boxes has been reduced from 7.5% to Nil.
  • Reduction in the customs duty on convergence products from 10% to 5%.
  • Excise duty has been reduced from 16% to 8% on specified convergence products.
  • All MP3/ MP4 or MPEG 4 players with or without radio/video reception facility will attract 5% customs duty.

Impact

The exemption of customs duty will bring broadcasting equipment like set top boxes on par with rates applicable on telecom equipment and provide a fillip to the DTH industry that uses set top boxes. The cable TV operators, direct-to-home operators and IPTV operators like DISH TV and broadcasters like Zee, NDTV and TV18 would benefit from this move. However this measure is not favorable for the domestic companies manufacturing set top boxes. Further more increase in the custom duty of MP3 or like products will encourage domestic production and benefit Indian companies like Moser Bear. Nonetheless, the drop in the income tax will definitely rise income level and peoples’ spending on entertainment.

Metals Neutral

Issues and Industry demands

  • Reduction in customs duty of melting scrap of iron or steel and Metallurgical coke from current level of 5% to 2%
  • Customs duty on stainless steel raw materials like ferro-nickel and Stainless steel scrap should be reduced from 5% to 2%.
  • Excise duty on Scrap of stainless steel for melting and ferro-nickel may be reduced from 16% currently to nil.

Measures

  • Custom duty on iron or steel melting scrap cut from 5% to Nil.
  • Reduction in customs duty of aluminium scrap has been reduced from 5% to Nil.

Impact

For steel sector, it was a welcome move to reduce the custom duty on steel melting scrap which will marginally help to offset the major cost push the industry is facing today, it was a negligible impact measure. Hence the overall impact of budget is neutral for the sector.

Oil and Gas Negative

Industry Expectations

  • Reduction in excise duty on petrol and petroleum products.
  • Service tax for oil exploration companies to be exempted.
  • An infrastructure status being granted to E&P as well as to pipelines on account of the subsidy burden which upstream companies are sharing.
  • A 10-year tax holiday should be granted to E&P players, pipelines, storage terminals and other related facilities for transportation and storage of petroleum products.
  • Undertakings engaged in the commercial production or refining of mineral oil should be given the option of claiming tax holiday.
  • Natural gas, which currently attracts high sales taxes, should be given the “declared goods” status. Industry is also requesting for LNG to be exempt from custom duty.

Measures

  • Ad valorem part of the excise duty on unbranded petrol and unbranded diesel being abolished and replaced by an equivalent specific duty of Rs.1.35 per litre. There will be only a specific duty of Rs.14.35 per litre on unbranded petrol and Rs.4.60 per litre on unbranded diesel; there will be no impact on retail prices.
  • Customs duty on crude and unrefined sulphur has been reduced from 5% to 2%.
  • Customs duty on phosphoric acid has been unified at 5% irrespective of its use.
  • Customs duty exemption presently available on naphtha for manufacture of specified polymers has been withdrawn.
  • Central Sales Tax rate is being reduced from 3% to 2% from April 1, 2008.
  • General rate of excise duty - CENVAT has been reduced from 16% to 14%.

Impact

Govt. has restructured the advalorem component of the excise duty on unbranded petrol and diesel. After the implementation of the new duty structure total excise duty on petrol would stand at 14.35 rupees per litre, while unbranded diesel would attract duty of 4.65 rupees per litre. However, such restructuring will have no impact on retail prices but in turn oil downstream segment will continue to suffer under recoveries from petroleum products.
Polymer industry will be negatively impacted, as costlier Naphtha will push its cost structure upwards. Polymer is used in a host of downstream sectors such as plastics and paints which will face margin pressures.
In total, all such proposals failed to cheer the oil sector which had hoped for wider tax changes, reduction in state levies and steps to encourage more investments in oil and gas sector.

Pharmaceutical Positive

Issues and Industry demands

  • 10-year extension of tax benefits to be granted for standalone R&D entity.
  • Rate of weighted deduction to be raised from 150% to 200% under section 35 (2B) and to be extended for another 5 years i.e. up to March 2017.
  • 100% deduction in profits for operating and maintaining hospitals in rural areas to be extended from 31st March 2008 to 31st March 2012.
  • Custom duty rate on advanced medical equipments recommended to be reduced to 5%.
  • Reducing Customs Duty on imported life saving drugs to Nil from 5-10% at present.
  • Rationalization of excise duty from the current 16% to 8% in a bid to make medicines more affordable.
  • Increase in allocation on healthcare infrastructure and HIV eradication, etc

Measures

  • Extension of weighted deduction of 150% on R&D expenditure.
  • 5 years tax holiday for setting up hospitals in non urban cities.
  • Excise duty on all goods produced to be reduced from 16% to 8%.
  • Excise duty has been fully exempted on anti-AIDS drug ATAZANAVIR, and bulk drugs for its manufacture.
  • Rs. 16,534 crore is allocated for healthcare sector.
  • Customs duty to be reduced from 10% to 5% on certain specified life saving drugs and on the bulk drugs used for the manufacture of such drugs.
  • Customs duty on specified raw materials required to manufacture of ELISA kits has been reduced from 10%/7.5% to 5%.
  • Rs. 1,042 crores allocated for drive to eradicate polio with focus on high risk districts in Uttar Pradesh and Bihar.
  • National Aids Control Programme provided Rs. 993 crore.
  • The allocation to the National Rural Health Mission is hiked by 15% and a health cover of Rs. 30,000 for every worker in the BPL category has been announced.

Impact

This time round also the impact of Union budget has been positive for the pharmaceutical industry. The extension of weighted deduction of 150% for expenditure relating to in-house research and development would provide further impetus to the R&D spending. Increased focus on healthcare sector and higher outlay for polio and HIV eradication will also prove to be beneficial for the pharmaceutical companies. This will have a positive impact on companies like Panacea Biotech & Cipla. The domestic pharmaceutical industry on Friday welcomed Finance Minister P. Chidambaram's proposal to cut excise duty on drugs and said the move will help in making medicines more affordable to the common man. Increased focus on healthcare sector will be beneficial to the domestic industry.

Power Positive

Issues and Industry demands

  • Custom duty on Fuels Oils like furnace oil, LSHS from 10% to 5%.
  • Custom duty on Non-coking coke & Petroleum coke from 5% to 2%.
  • Custom duty on Naphtha & Liquefied propane fro 5% to 2%.
  • Custom duty on Metallurgical coke with ash content to less than 12%.
  • Section 80 IA to be extended from FY 11 to FY 17

Measures

  • Exemption from additional duty of customs of 4% levied under section 3(5) of Customs Tariff Act, 1975 has been withdrawn from power generation projects (other than mega power projects), transmission, sub-transmission, distribution projects and goods for high voltage transmission projects.
  • Fourth UMPP at Tilaiya to be awarded shortly; Chhattisgarh, Karnataka, Maharashtra, Orissa and Tamilnadu urged to bring five more UMPPs to the bidding stage by extending the required support.
  • Rajiv Gandhi Grameen Vidyutikaran Yojana to be continued during the Eleventh Plan period with a capital subsidy of Rs.28,000 crore; allocation of Rs.5,500 crore for 2008-09.
  • Accelerated Power Development and Reforms Project: Rs.800 crore to be provided in 2008-09, A National Fund for transmission and distribution reform to be created.
  • Rs 8 bn to be provided for Accelerated Power Development and Reforms Project (APDRP) in FY09.
  • Proposal to create of national fund for transmission and distribution reform.
  • Coal distribution policy and appointment of a coal regulator to bring regularity to the process of coal production and pricing.

Impact

Government promise on power sector reforms can clearly be seen from the steps taken. The only negative factor is the removal of exemption of additional duty of customs of 4% from power generation projects (other than mega power projects), transmission, sub-transmission, distribution projects and goods for high voltage transmission projects that will increase the cost of implementation of such projects. Focus on UMPPs projects will speed up the target capacity expansion programme and higher allocation to APDRP will fastly reduce the losses to State Electricity boards. Setting up of T&D fund, continuance of RGGVY, are other key positives for the industry to take from the Budget 2008-09. The major beneficiaries from the above action are Tata Power, NTPC and Reliance Power.

Real Estate Neutral

Issues and Industry Demands

  • All Rental Income from houses below 150 sq meters should be exempt from Income and Service Tax.
  • Rationalize several provisions relating to direct and indirect taxes, and FDI regulations relating to projects and debt finance.
  • Introduction of value added stamp duty (VAS).
  • Rationalize Dividend Distribution Tax, which was raised from 12.5% to 15% as it impacts the Real Estate funds.
  • 100% Tax deduction enjoyed in development of residential units to be continued
  • Sec 80IB must also include tax deduction from the slum rehabilitation projects and should be extended up to March 2012.
  • Removal of the leasing services under the service tax gamut.
  • Tax benefits on the interest and principal component for home loans to continue.
  • The government should launch a mass housing scheme.

Measures

  • Proposal to enhance the subsidy for new houses under Indira Awas Yojana from Rs.25,000 to Rs.35,000
  • Public sector banks will be advised to include IAY houses under the DRI scheme and lend up to Rs 20,000 per unit at an interest rate of 4%.
  • Proposal to create a fund of Rs 1,200 crore in NHB to enhance its refinance operations in the rural housing sector.
  • 5-year tax holiday for 2/3/4 star hotels in UNESCO declared 'World Heritage Sites'
  • Extending 5-year tax holiday for setting up hospitals in non-urban cities

Impact

Union Budget 2008 has not been able to meet the industry-specific expectations of the real estate sector as there has been no relief on service tax on rentals which will continue to increase pricing pressure. The enhancement of subsidy for new houses under Indira Awas Yojana (IAY), differential rate of interest of 4% under IAY and a fund of Rs 1,200 crore in NHB to enhance its refinance operations in the rural housing sector is set to benefit the housing sector. The 5-year tax holiday for 2/3/4 star hotels in UNESCO declared 'World Heritage Sites' will boost development attracting investment. Extending 5-year tax holiday for setting up hospitals in non-urban cities, currently given only to hospitals in the rural areas, to those across the country will fuel growth especially in tier-2 and tier-3 cities and attract investment. Hike in excise duty on cement may have some impact on developers increasing construction costs. Rs.624 crore provided for Commonwealth Games in 2008-09 is going to benefit the real estate sector in the NCR.

Retail Neutral [Top]

Industry Expectations

  • 100% FDI in Retail sector: To speed up investment in basic infrastructure such as supply chain etc., experts believe FM should raise the current FDI limit in the sector to 100%. Experts have also suggested opening the window for multi-brand retailing for electronic good, high technology items, sports and automobile goods.
  • Status of Industry: To avail the benefits of organized financing and ease of VAT implementation etc., experts suggested FM to grant a status of industry to the retail sector.
  • Setting off service taxes on all inputs against sales tax: Retailers too have requested FM to allow them to set-off the service taxes paid by them on all inputs such as rent and telephone against sales taxes.
  • Eliminate multiple licenses and clearances: Retailers need to obtain licenses and permits such as basic trading licenses, product specific licenses, pollution clearances etc for every retail outlet (even its’ a chain store). This only delays the opening of stores and increases cost.
  • Uniform tax structure should be implemented: Gradual shift from the various state taxes to uniform tax would result in ease in sourcing goods efficiently and in turn aid the growth of the retail sector. The introduction of VAT in all states would result into the scrapping of differential sales tax prevailing in different states on the same product.

Measures

  • CENVAT has been reduced from 16% to 14%.
  • Central Sales Tax rate is being reduced from 3% to 2% from April 1, 2008.

Impact
The Finance Minister has been silent on proposals for the retail industry.
However, he made a proposal wherein the Central Sales Tax rate is being reduced from 3% to 2% from April 1, 2008 as well as CENVAT has also been reduced to 14% from 16%. The cut in overall CENVAT rates will reduce the input cost and would in turn result in ease in sourcing goods efficiently and assist the growth of the retail sector. Reduction in customs duty on specified machinery for manufacture of sports goods will in turn provide fillip to the manufacture of sports goods.

Telecommunications Positive

Issues & Industry demands

  • The replacement of multiple taxes and levies with a single levy and also to simply tax compliance.
  • License charges are 10% of AGR (adjusted gross revenue) in metros as well as in A-category circles, 8% of AGR in B-category and 6% of AGR in C-category circles. However single levy of 6% of AGR in all the circles is demanded.
  • Excise duty on all domestic telecom products should be reduced from 16% to 8%.
  • Customs duty on all capital goods, raw materials or input components, required to manufacture electronic items and telecom equipment should be reduced to nil and CST for telecom equipment should be abolished.
  • Telecom operators have sought reduction in duty rates on wireless data cards from current 21.6% to 4%.
  • 12.24 % of service tax on lease and rentals on immobile property used for commercial purposes should be abolished.

Measures

  • General rate of excise duty (CENVAT) has been reduced from 16% to 14%.
  • Excise duty has been fully exempted on Wireless data modem cards. CVD shall also be exempted on imported cards.
  • Customs duty on specified parts of set-top boxes has been reduced from 7.5% to Nil.
  • Reduction in the customs duty on convergence products from 10% to 5%.
  • Excise duty has been reduced from 16% to 8% on specified convergence products.
  • National Calamity Contingent duty (NCCD) at the rate of 1% has been imposed on mobile phones.

Impact

Reduction in the CENVAT and cut back in the custom duty & excise duty on convergence product would lower the burden of levies on the sector and provide an incentive for greater investment for expansion of service. Exemption of excise duty and CVD on wireless data modem cards will reduce the cost of service for the end user and roll out affordable services to all areas and especially to the semi-urban and rural areas. All telecommunication service provider as well as manufacturer like Bharti, RCom, Idea, Gemini Comm, etc are going to welcome such an application.

The move to levy 1% excise duty would not only increase the price of mobile phone sets but also restrict subscribers’ growth for mobile services companies. However the increase in the disposable income of individuals may set off this loss. Nonetheless, allocation of Rs.31,280 crore for Bharat Nirman is also going to benefit the sector.

Textiles Positive


Issues and Industry Demands

  • Introduction of an excise certification/exemption system in which manufacturer should be allowed to procure his inputs without payment of duty to the extent of CENVAT accumulation in the books of account.
  • Reduction of excise duty and custom duty on polyester fibre from 8% to 4% or zero. Custom duty from 5% to 4% and Special Additional Duty (SAD) of 4% to be made zero.
  • Reduction of custom duty from 7.5% to 5% on textile machinery. In case of import under EPCG scheme, the duty to be made zero from present 5%.
  • Focus Market and Focus Products Scheme should be made more attractive to suit the industry.
  • Introduction of a mechanism to eliminate delays in providing assistance under Technology Upgradation Fund Scheme (TUFS).
  • Extension of post shipment credit period from 90 days to 180 days.
  • Extend the benefits of Integrated Textile Park Scheme (STIP) to textile specific SEZ with higher allocation of funds.
  • Additional interest subsidy of 2% for man made fibre (MMF) manufacturers.
  • Excise duty on synthetic fibres, PP fibre and filament yarns along with their raw materials be reduced to 4%.
  • Reduction of excise duty on textile machinery & spares to 8% from present 16%.
  • No further reduction of import duty is made on polyester chips, synthetic fibres.
  • Apparel Export Promotion Council (AEPC) is pitching for 100% tax exemption on profits from apparel exports.

Measures

  • Provision for SITP being maintained at Rs.450 crore in 2008-09.
  • Provision for TUF to be increased to Rs.1,090 crore in 2008-09 from Rs.911 crore in 2007-08.
  • All 30 integrated textile parks have been approved & 20 units in 4 parks have commenced production.
  • Reduction in CENVAT to 14% on all goods.
  • For the development of the handloom sector 250 clusters being developed and 443 yarn banks established under the cluster approach.
  • Over 17 lakh families of weavers to be covered under the health insurance scheme by March 2008.
  • Allocation being increased to Rs.340 crore in 2008-09.
  • Infrastructure and production being scaled up by taking up six centres for development as megaclusters; Varanasi and Sibsagar to be taken up for handlooms, Bhiwandi and Erode for powerlooms, and Narsapur and Moradabad for handicrafts.
  • Each mega-cluster to require about Rs.70 crore, Initial provision of Rs.100 crore made in 2008-09.
  • National calamity contingent duty (NCCD) of 1% removed on polyester filament yarn.

Impact

Budget 2008 is benefited to the textile industry as a whole. The extension of TUF will accelerate the capital investment in the textile sector. TUF helps in modernization and technological upgradation of the industry and will benefit the larger players to accelerate their ‘capex’ plans & to smaller players also who are yet to complete expansions. Approval of all 30 integrated textiles parks & commencement of production in 20 units will boost garment and textile companies. The cut in overall CENVAT rates will reduce input cost & help the textile companies to grow faster. Development of 250 clusters & increased allocation will benefit handloom & handicrafts by increasing the pricing power of the unorganized segments of the sector. As well as, removal of NCCD of 1% on polyester filament yarn will benefit the spinning companies. With all this, textile industry will be able to earn more revenue from its exports.

Tobacco Negative

Industry Wish-list

  • Industry’s only expectations include, maintain the tax stability on cigarettes and continue the specific duty structure.
  • However, industry is demanding for better surveillance and stricter implementation of anti-smuggling measure for smuggled cigarettes.

Budget Measures

  • Customs duty on cigars, cheroots and cigarillos has been increased from 30% to 60%.
  • Excise duty on pan masala, not containing tobacco, with betel nut content not more than 15%, has been reduced from 16% to 8%. It has also been exempted from National Calamity Contingent Duty. However, the aforesaid concession is subject to certain conditions.
  • Excise duty rates on non-filter cigarettes have been enhanced to bring them at par with filter cigarettes of corresponding length.

Particulars

2007-08 2008-09
Excise + NCCD + Health Cess
Rs. Per 1000 cigarettes
Excise + NCCD + Health Cess
Rs. Per 1000 cigarettes

Cigarettes non-filter (<=60mm)

168 819

Cigarettes non-filter (>60-70mm)

546 1323

Impact

FM’s budget didn’t meet industry expectation of leaving the tax structure unchanged and has brought negative sentiments. Cigarette major, ITC will see the brunt of reduction in demand of its non-filter cigarette Scissors, Hero, Bristol, and Capstan. On the positive side tax structure on filter cigarette left unchanged.

Hotel Neutral

Issues and Industry demands

  • To be granted infrastructure status under Section 80 IA of the Income Tax Act 196.
  • Rate of depreciation on buildings in Hotels to be raised to 20% from 10% currently.
  • Hotels should be exempted from paying service tax on services received from foreign tour operators, as it is one of the prime foreign exchange earners.
  • Service tax on revenue from Banquet sales of Hotels should be withdrawn as VAT/ Sales Tax of 12.50% is charged by State Governments on the same amount.
  • Tax holiday of 5 years for two-star, three-star, four-star hotels and convention centers with seating capacity of not less than 3,000 in the NCR needs to be extended to Hotels of all categories across the country.
  • Customs duty structure should be rationalized for Hotels and Restaurants in tune with the international practices, to enable the Indian service sector to compete with their International counterparts.

Measures

  • Proposed to grant a 5-year tax holiday for two, three and four-star hotels established in specific districts that are UNESCO-declared World Heritage Sites. The hotel should be constructed and start functioning during the period April 1, 2008 to March 31, 2013.
  • Tourism infrastructure to get an allocation of Rs. 520 crore as against Rs. 423 crore last year.

Impact

A tax holiday given to all categories of hotels across India would be useful to meet the shortage of rooms. But the impact has not been as positive as expected. The Indian hotel industry in the budget 2008-09 were expecting allocation of around Rs. 400 crore in order to build an estimated 100,000 rooms, needed for the expected arrival of 10 million foreign tourists in the country by 2010 due to the Commonwealth games to be hosted by India. The hoteliers might be a little disappointed because of not receiving the infrastructure status to avail the benefits attached to it.

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