Budget 2005: Finance Minister on a manufacturing high

While presenting the Union Budget 2005-06 in the Parliament, Finance Minister
(FM) P Chidambaram outlined the government's efforts to give a major boost to
local manufacturing and increase India's potential as a manufacturing hub.
This was despite him now having any specific handouts for the IT industry.

While IT software will be exempted from countervailing tax (CVT), the
government is going to put 4% countervailing duty on imports for IT products.
Additionally, the government has identified about 270 electronic components and
items on which the duty will be reduced to nil.

The FM preferred to focus on overall development of areas like rural
development, agriculture and education. What would be heartening to the IT
industry is the emphasis on infrastructure. Acknowledging the glaring deficit in
infrastructure, Chidambaram proposed a special purpose vehicle for investment in
roads, ports and other infrastructure.

"Under the national urban renewal mission, seven mega cities would be
covered with a plan outlay of Rs 5,500 crore in FY06," he said. The
government has decided to go ahead with the value-added tax (VAT) implementation
starting April 1, 2005. To encourage emerging companies, Chidambaram also said
that SMEs in the pharma and IT sectors would get equity support.

The main highlights from the Budget proceedings are-a proposal to set up a
manufacturing competitiveness council that will look towards implementing the
manufacturing competitiveness scheme on a national scale. Seventy lakh
additional jobs will be created in the IT sector by 2009. Also, Rs 12,000 crore
will be allocated for the USO fund for 2005-06 and the government proposes to
connect 1687 sub-divisions with the help of BSNL.

As envisaged by the President Abdul Kalam, the finance minister announced the
Bharat Nirman program, which he described as a 'business plan for developing
rural India'. 5.2 lakh Village Panchayat Telephones (VPTs) have already been
provided by BSNL to the village population. The government is proposing to
connect 66,822 villages to the national mainstream and BSNL will take VPTs to
these villages in 2005-06.

Biotech (BT) and agriculture have a reason to smile. The FM announced the
creation of a national horticultural mission with a budget of Rs 630 crore,
which will provide end-to-end support in research and marketing. Also on the
anvil is a panel for agricultural research.

To encourage BT and pharma companies, customs duties on nine machineries have
been reduced to 5%. What would be of interest to Indian companies is that
corporate income tax for domestic companies has reduced to 30%. The 10%
surcharge continues.

Conveyance and canteen allowance would be outside the tax net, but all other
perks given by employers to employees as a collective benefit will be taxed at
30%. This new tax will be called Fringe Benefit Tax and will be levied on
employers.

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