RETURN OF THE FEEL GOOD FACTOR

The Union Budget 2001-02 has clearly brought back the "feel good factor" to Corporate India. An indicator of this was the response from the stock markets, which zoomed to a 11-month high of 4,247 points, netting 177 points.

AUTOMOBILE SECTOR

An 8% cut in excise duty for cars, which has been effected by reducing special excise duty from 24 to 16%. This will considerably lower prices for the car buyer. This will also mean that other levies will be calculated on a lower base price, leading to a reduction in the ex-showroom price.

The FM has also offered protection for domestic car manufacturers from affordable second-hand imports by fixing a high 105% import duty (almost thrice the average customs duty rate) for these cars. This takes the effective total levies to 180%, which is close to the level of 200% that the industry has been asking for. This has been put in place to ensure that the industry is not flooded by second-hand imported cars when the Quantitative Restrictions are lifted on April 1st. At the same time the removal of special import duty on auto components will make imported inputs for Automobiles cheaper.

Consequently, Ford India Ltd has announced a drop in prices (with immediate effect) of the Ikon, which will range from RS 29,000 to RS 40,000. Maruti Udyog Ltd has announced a price reduction ranging from RS 11,000 to RS 42,000.

Two-wheelers will now cost less with the reduction of excise duty from 24% to 16%. There is no change however in the duty structure for mopeds, which continues to be 16%.

An accelerated depreciation rate of 50% for commercial vehicles, in the first year of purchase, has been announced, to increase demand.

IT and TELECOM

Section 80-HHE of the Income Tax Act has been amended, to include on-site services by units located in the Software Technology Parks (STPs) into the purview of exports, making them eligible for tax benefits. The Companies listed in the STPs and similar zones not to lose their tax holiday benefits, even if they change their ownership pattern, which was not so earlier.

A uniform 16% excise duty on PCs has been announced. Custom's duty on IT and telecom products and related components are to remain at 15%. This implies that the growth of the domestic hardware industry will not be led by price cuts, at the same time it will be led by increased consumption as the FM has announced an increased drive on the computerisation of the Government departments and increased thrust on technical education.

A 5% service charge, effective from 1st July 2001 on scientific and technical consulting services, which includes IT consulting has been announced. The tax exemption given earlier to units located in EPZs, STPs and other special economic zones on 25% of the sale to domestic market has now been withdrawn. In order to beef up the infrastructure for this industry, a 10-year tax holiday for developers of SEZs and IT parks has been announced. Indian employees who have been given ESOPs in foreign Companies can now invest upto $20,000 annually instead of in blocks of 5 years.

For the telecom sector the 5-year tax holiday and 30% tax deduction has been reintroduced. This has also been extended to ISPs and broadband networks. The import tariffs on infrastructure equipment for telecom products have been reduced to 15% from 25%.

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