The chemical industry would find this Budget disappointing

Rajeev M. Pandia, President, Indian Chemicals Manufacturers Association (ICMA) & Managing Director, Herdillia Chemicals

In the first part of his speech, the Finance Minister repeatedly referred to the slowdown in the industrial sector, which resulted in reduction in Government revenue. It was felt that having realised the gravity of the slowdown, the Government would propose steps to increase the growth rate and profitability of industry. However, what followed in the second part was a series of measures, which will hurt the Indian industry, particularly the chemical sector on account of the following reasons:

There was a general feeling that in view of the global slowdown the tariffs should be left untouched for a year, especially since the Government has not been successful in initiating second generation reforms which were committed last year. It was therefore recommended by industry that further tariff reduction should follow implementation of second generation reforms.

Instead the peak tariff has been brought down without any significant measure on the structural handicaps of the economy, viz. poor infrastructure, high real interest rates, stringent labour laws, etc. This reduction has been made in spite of the fact that India has gone way beyond its commitments to WTO in respect of binding rates, both in terms of level and timing.

While the peak rate has been brought down from 35% to 30%, which will affect a major part of the chemical industry, there is no cascading reduction in rates for basic and intermediate inputs. This would be against the principle of encouraging value addition.

While the Finance Ministry has been focusing only on the peak rate, it still wishes to maintain the lowest rate at 10% even in the year 2004-05. This is totally contrary to the structure prevailing in other countries where most basic inputs are taxed at 0%.

The chemical industry is highly energy intensive. It was therefore hoped that as part of dismantling of Administered Price Mechanism (APM), there would be a reduction in the tariffs on fuels. This does not seem to have happened.

It was envisaged that to catalyse growth, several measures would be announced including investment allowance. However, the only measure announced is 15% additional depreciation, which is inadequate in the current circumstances.

It was also hoped that the Government would recognise the importance of the chemical industry, at least on par with that of the textile industry. In the case of textiles, several modernisation measures are already in place and yet additional ones were announced today. However, this has not been done for the chemical industry at all.

There was no reference to reforms of labour laws, which were committed last year but not implemented.

Similarly, there was no commitment for the introduction of the VAT regime which is vital for the chemical industry in view of value addition taking place at several stages.

Expectations on reduction in cross subsidy, measures to promote R&D and technology development, which were expected, have not been covered.

Barring the creation of infrastructure equity fund, no major measure has been announced for infrastructure development.

It was also hoped that measures would be taken to spur the capital market and also restructuring of companies through mergers and acquisitions, which has not happened. In the current situation, these would have been extremely useful to enhance competitiveness.

The introduction of 5% surcharge on tax at the current juncture also appears to be illtimed.

In view of the foregoing, it is believed, as mentioned earlier, that the chemical industry would find this Budget disappointing and not responsive to its genuine needs to achieve growth and competitiveness.

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