Mixed bag for engineering goods sector


With Finance minister Pranab Mukherjee announcing the proposals for Union Budget 2011-12 on February 28, 2011 all sectors are busy estimating their gains and losses from the Budget. One such sector that had a lot of expectations from the Budget is the engineering goods sector, including the auto component and capital goods segments. Industry players and associations expected the government to control the rising inflation rate and extend them technological and infrastructural support to facilitate their growth.

So, were the expectations of the sectoral players fulfilled in this year’s Budget? According to K Jayaraman – Consultant and Equity research advisor, Bonanza Portfolio Limited, a financial services firm in Mumbai, “Zero increase in excise duty for the auto sector is a positive development.”

The auto component sector has been provided customs duty exemption on imported replacement batteries for electrical vehicles. This is an indirect tax exemption that has been extended to the sector. Speaking of indirect taxes, one such provision that has been provided is to the capital goods segment. During his Budget speech, the FM said that capital goods imported for the expansion of existing mega or ultra mega power projects enjoy a concessional basic customs duty of 2.5% and total exemption from countervailing duty. This handicaps indigenous suppliers who are required to pay central excise duty on supplies to such projects. Mr Mukherjee proposed to correct this irregularity by offering a parallel excise duty exemption.

Other measures

Other relief measures given to the capital goods segment include reduction of excise duty from 10% to 5% on parts of specified textile machinery and full exemption from excise duty to specified part of sewing machines. The auto component sector has also been extended one such provision, with full exemption from excise duty being given to parts of power tillers when cleared to another factory of the same manufacturer for manufacturing power tillers.

Speaking to a Bizxchange correspondent, CD Puri, VP of Consulting Engineering Association of India, said, “I would term these Budget announcements to be average. Neither has there been any major reduction in inputs nor any raise in duties. Therefore, there is unlikely to be any significant impact on the sector. Sectoral growth will continue the way it has been growing.”

Incidentally, the engineering goods sector has a significant presence of MSMEs. Therefore, it is also important to find out the impact of the Budget on these players. In this context, Dinesh Agarwal, founder and CEO, IndiaMART.com, said, “We are delighted that the FM has taken into consideration the need to simplify the tax procedures for small businesses. This was one of the key expectations we had from this Budget. The progress on GST is also commendable and we look forward to its speedy implementation this year. This will synchronise the sale of goods across the country and simplify taxation for MSMEs.”

While Mr Puri has termed the Budget to be “average”, given the number of provisions that have been extended to the engineering goods industry, sectoral players are unlikely to be disappointed.