Expect softening of duties to address inflation: CII

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Is market feeling pre-budget jitters? Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

R Seshasayee, President of CII, comments on the upcoming Budget. He states that CII expects a softening of duties to address inflation.

Seshasayee adds that the peak customs duty may be cut to 10% and 7.5% in some cases. According to him, it will be difficult for the Finance minister to hike service tax and he opines that the collective duty should not be more than 15%.

CII is not expecting the FM to touch upon FBT and they believe that the excise should be reduced from 16% to 14%. They do not see the growth slowing down at ground level. They are expecting some reduction in excise duty rates.

 

Excerpts from CNBC-TV18's exclusive interview with R Seshasayee:

 

Q: Do you think the 10% surcharge will go?

 

A: I would expect it to go - whether it would happen, I couldn't say. Its more easy to say what I would like to see - yes, I would like to see it go.

 

Q: Have you built a persuasive case to the FM to lower the tax points for companies?

 

A: They must look at the context in which this Budget is been presented; first of course, we have this issue that whilst we have tremendous amount of underpinning of growth, we also have inflation which we need to recon with and therefore on that the issues are quite clear. Therefore one would expect to see some softening of duties because that's a response to the situational inflation.

 

On the issues to direct tax rates coming down, I think there is still a very strong case for stepping up both savings and investments to keep this momentum up and this is not going to happen merely by looking at FDI. We are moving from a consumption led growth to an investments led growth now and I think therefore, this is a strong case anyway for having larger degree of corporate savings and indeed even household savings and I think that's another area which needs to be addressed now.       

 

Q: Because of those inflation concerns, there have been worries that the Finance Minister might make some insulated moves for specific sectors particularly from the commodity universe. Do you expect to see some of that happen in the Budget?

 

A: There is quite clearly a case for looking at some specific areas where we need to address a supply side situation and in order to do that there would have to be some softening in terms of duties in order to improve the supplies and that's going to be unavoidable. This is perhaps going to hurt in the short-term but in the overall interest of keeping inflation down and keeping growth up it will be a good thing.

 

Q: Could you flesh that out a bit in what form do you think it might take?

 

A: Broadly, in the secular fashion, I think we are going to see some reduction in the peak duty levels and in so doing the 12.5% might come to 10% in some cases and I won't be surprised if it goes down all the way to 7.5% in some cases. If that's required in order to improve the supply side position and that could well be in the case of some commodities.

 

I think, it is certainly right for the economy, may not be so good for a particular sector but I believe in the competitiveness of our industry and sooner than later we will be able to face the situation. 

 

Q: What about the flip side - excise duty because custom duty cuts are not good for companies but excise duty cuts are positive. Do you expect him to cut excise as well in some sectors?

 

A: CII has said that we should move towards rate which the earlier Kelker Committee had talked about - 20%, which is a composite GST (Goods and Services Tax) to 15% and I think that level of presumption is quite adequate both in terms of what the country needs in terms of resources for plan purposes as well as what is necessary to keep the competitiveness up. And from that point of view I won't be surprised if there is some reduction in excise duty rates from the 16%, which seem to have been set as a benchmark and that benchmark might well get disturbed to something lower than that maybe 14%.

 

Continued on page 2 ....