Union Budget pushes GST rollout to April 2011

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A day ahead of Union Budget the markets were tepid, the sensex closed trading at 16254.20 (plummeted by 1.77 points). But soon after the first post slowdown Union Budget was tabled the Sensex and Nifty closed trading at 16429.55 and 4922.30 respectively. The expectations of the Indian retailers from the finance minister were not high but their wishlists were long.

The Indian retailers were optimist about the faster and streamlined implementation of Goods and Services Tax (GST). But Pranab Mukherjee, finance minister today announced in the Parliament, “On GST, we have been focusing on generating a wide consensus on its design. In November 2009, the Empowered Committee of the State Finance Ministers placed the first discussion paper on GST in the public domain. The Thirteenth Finance Commission has also made a number of significant recommendations relating to GST, which will contribute to the ongoing discussions.”

Sunil Sanklecha, managing partner, Nuts-n-Spices, who was quoted in IndiaRetailing day before yesterday as saying, “We demand the early introduction of GST for the retailers to operate pan India with uniform tax structure, removal of service tax on commercial properties and reduction in corporate tax by at least five per cent,” is unhappy with the Budget because of not much initiative was taken to control inflation for food items.

Mukherjee’s Union Budget has pushed GST rollout to April 2011. “We are actively engaged with the Empowered Committee to finalise the structure of GST as well as the modalities of its expeditious implementation. It will be my earnest endeavour to introduce GST along with the DTC in April, 2011,” announced Mukherjee.

In reaction to Mukherjee’s announcement on GST, T S Ashwin, MD, Odyssey India Ltd says, “Clarity on this is positive but this will further delay bringing in supply chain efficiencies in retail till GST rollout and will slowdown this critical reform process that a lot of retailers were looking forward to and consequently their efforts to reduce costs and improve bottom-lines.”

Ashwin further reacts, “Service tax remains unchanged to bring it in line with road map for GST. This is a good indicator and clear approach. Retail industry could have been given some kind of concessions. None of the industry’s main demands have been addressed, at least not evident from the speech.” Interestingly, Ashwin calls it a good Budget overall, which points at the right direction but has nothing to directly and positively impact retail industry and retailers in the short term.

However, the Budget has taken care the rural India. The allocation for National Rural Employment Guarantee Act (NREGA) has been stepped up to Rs.40,100 crore in 2010-11. Bharat Nirman has made a substantial contribution to the upgradation of rural infrastructure through its various programmes. For the year 2010-11, Mukherjee proposed to allocate an amount of Rs.48,000 crore for these programmes.

Reacting to this allocation Ajay Shriram, chairman and senior managing director, DSCL (DCM Shriram Consolidated Ltd) says, “The Budget presented by the FM is a stabilising and responsible one. It has focused on the aam aadmi and farmer sector with the slab change in Income tax and the expenditures planned for rural development through schemes like Rashtriya Krishi Vikas Yojna and NREGA.”

“The Budget presented by the FM is a stabilising and responsible one. It has focused on the aam aadmi and farmer sector with the slab change in Income tax and the expenditures planned for rural development through schemes like Rashtriya Krishi Vikas Yojna and NREGA.”
— Ajay Shriram, chairman and senior managing director, DSCL

“The initiatives to be taken in the agriculture sector are a step in the positive direction with the four pronged strategy of the government with focus on agricultural productivity, focus on reduction and wastage of food supplies, vegetables etc, credit support to the farmers and thrust to food processing and food output. This will further help in keeping a check on the food security, food productivity of the country going forward. Also the important thing is that the Budget lays the roadmap for fiscal consolidation from 5.5 per cent to bring deficit down to 4.8 per cent in 2011-2012 and 4.1 per cent in 2012-2013 per cent,” notes Shriram.

Adi Godrej, chairman Godrej Group says, “I feel this is a very clever and balanced Budget. The increase in the Income tax slabs and the additional expenditure in rural India will create consumer demand, resulting in strong economic growth. The benefits provided to R&D will have a very positive long term effect. There are certain drawbacks from the point of view of industrial production. The 2 per cent hike in excise duty and increase in the MAT rate to almost 20 per cent (including surcharge) are clear negatives.”

“However, the containment of the deficit at 5.5 per cent of GDP is a positive feature. I feel the Finance Minister will be able to better this number as his estimates of income from divestments and 3G auctions seem to be understated. I rate the budget 7 on 10 and feel that it is growth oriented. Even though the global economy is not doing well and recovery may be slow, the demand base the Finance Minister has helped create with this budget will help the Indian economy continue on a strong growth path,” says Godrej.

Sunil Duggal, CEO, Dabur India Ltd says, “I would term Mr. Pranab Mukherjee’s Union Budget 2010-11 as a perfect balancing act that seeks to achieve fiscal consolidation while not losing sight of the growth momentum and the growth engines.

While there may not be any direct upsides or downsides for the FMCG industry in this Budget, the higher allocation for rural spending, decision to expand the National Rural Employment Guarantee Scheme, credit support to farmers the increase in subvention for timely repayment of crop loan from 1 per cent to 2 per cent would surely go a long way in putting more money in rural pockets and ensuring that rural demand continues to power ahead. The intention to further promote the development of infrastructure, particularly in rural areas including highway development, is also a big positive and will help companies like Dabur improve penetration.”

Duggal further says, “The best part of the budget is surely the raising of income tax slabs and the marginal hike in exemption limit. These measures will result in higher disposable income in the hands of the masses, which would, in turn, fuel demand for consumer products and mitigate the expected impact of rising food Inflation.

While the hike in Minimum Alternate Tax (MAT) would lead to slightly higher tax outgo, the industry is upbeat about the government’s move to reinforce its intent on introducing national-level Goods and Services Tax (GST) from April 1, 2011.”

“While the government’s rolling targets for fiscal deficit pegged at 4.8 per cent and 4.1 per cent for 2011-12 and 2012-13 respectively may seem a bit far-fetched or optimistic, I would rate the Budget as overal positive,” he adds.

“Overall, it has been a mixed budget for us. New tax slabs and rates have been introduced which would offer relief to 60 per cent of tax payers providing them with greater disposable income. This would provide the necessary boost to consumer spending in the country, a pre-requisite to unleash the true growth momentum of the retail sector. Also, reduction of surcharge on domestic companies that the finance minister has announced today is sure to accelerate the expansion plans for the retail players at home,” says DPS Kohli, chairman, Koutons Retail India.

“However, industry status continues to delude the retail sector. This is a disappointment since this is the first step in truly reforming the sector and organising this highly unorganised sector. The hike in the excise duty is also not favorable news for us since this might directly affect the quality of production,” says Kohli.

“The Union Budget 2010 offers some very promising steps towards economic development. The investment driven strategy which includes providing relief to 60 per cent of taxpayers is surely a welcome proposal.”
— Viney Singh, MD, Max Hypermarket India Pvt. Ltd.

“Pranab Mukherjee has presented a smart budget. Over the past few days, he had been successful in drumming up a feeling of a harsh budget and moulded people’s mind to get prepared for some tough budget pronouncements. But what he delivered was rather smooth, given the compulsions of Fiscal Responsibility and Budget Management (FRBM) Act etc,” says Aditya V Agarwal, director, Emami Group.

Viney Singh, MD, Max Hypermarket India Pvt. Ltd says, “The Union Budget 2010 offers some very promising steps towards economic development. The investment driven strategy which includes providing relief to 60 per cent of taxpayers is surely a welcome proposal. Focus on infrastructure, and the budget allocated to its development, will give the much-needed impetus to various sectors. We are especially glad with the Finance Minister’s observation that the opening up of the retail sector needs attention. Private participation in the food-grains storage capacity deficit is also an optimistic step towards optimization of agricultural output.”

“In a move to boost affordable housing, the Finance Minister extended the 1% interest subsidy scheme to March 2011. Under this scheme, borrowers will be given a 1% subsidy on the first 12 equated monthly instalments (EMIs) to be paid to banks,” says SK Sayal, director & CEO, Alpha G:Corp.

“However, excise duty on cement, a crucial input, has been hiked from the current 8 to 10 per cent. This is a partial roll-back of the excise duty relief on cement and cement products. The commercial leasing segment has also been witnessing signs of recovery, even as the retail segment continues to languish. The government does not seem to have a firm view of the retail sector, which when opened up to global investments will be a key driver of the economy,” he adds.

“In a nutshell, Budget 2010 has been neutral and could come as a dampener to a sector which is gradually limping back with new projects being launched and improved liquidity on the back of qualified institutional placements (QIP) and proposed public issues,” says Sayal.

Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj says it is a positive, growth-oriented budget and growth in the economy always equals growth for the real estate sector. “There was definitely good news for agriculture, education, banking, hospitality and infrastructure. Because of the overall economic growth implied in their enablement by this budget, we have no overt complaints on behalf of real estate,” says Puri.

“We would have appreciated more clarity in terms of the extension of tax exemption under the Software Technologies Park of India (STPI). The IT and ITES industry is still struggling to find its post-slowdown footing and is in a fledgling stage of recovery. The sector requires enough incentive to ensure that existing expansion plans continue,” says Puri.

— Diwakar Kumar

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