Budget 2014: Manufacturing To Get Truckload Of Sops From Narendra Modi

NEW DELHI: The Narendra Modi government is likely to unveil a range of measures in its first budget, expected to be announced next month, to revive manufacturing and create more jobs as it looks to put the economy back on the high-growth track.

These steps could include an amendment giving relief to automakers, consumer durables firms and others from the controversial Fiat judgement, creating large regional manufacturing zones and correcting anomalies in the import duty structure.

The Fiat verdict meant that manufacturers offering discounts to encourage sales still had to pay excise to the full extent of the price. "We have to look at manufacturing if we have to create jobs and boost growth," said a government official. "The idea is to create the right environment that facilitates this."

The Modi government needs to revive manufacturing to get the economy moving again, given how critical it is to creating jobs and fulfilling the expectations of Indians, who voted NDA to power.

The manufacturing sector, which contributes a little over 15.2% of GDP, contracted 0.7% in 2013-14 after expanding by just 1.0% in 2012-13. The finance ministry favours the creation of dedicated regional hubs for manufacturing, flexibility in labour laws and a safety net for workers as also rationalisation of taxes. Apart from correcting anomalies — finished products attract lower duty than inputs in sectors such as durables and chemicals — the government is also looking at tax measures that would remove hurdles in the way of manufacturing without hurting revenue.

The SC judgement in the Fiat case hit manufacturing, particularly auto, consumer durables, FMCG and chemicals sectors, with the excise department raising tax demands even for past periods.

While the verdict was restricted to a year through a circular, industry still wants the law changed.

"This is a huge problem particularly as most manufacturers have to offer discounts to stay afloat and beat the slowdown," said another official.

The value on which tax should be levied is the price at which a product is sold, known as the transaction value in technical parlance. "Globally, tax is levied on transaction value," the second official said. Such a change would be in line with the government's resolve to move to a unified goods and services tax (GST) regime expeditiously. It is likely that some GST provisions would be aligned with current laws.