To spur manufacturing, hit by rising interest rates, the government, on Friday, proposed two per cent cut in excise duty from 16 per cent to 14 per cent on all goods, besides giving further duty concessions to specific sectors like auto and pharma.

“The manufacturing sector is the backbone of any economy. It is consumption that drives production and it is production that drives investment...I believe there is a need to give a stimulus to the manufacturing sector,” Finance Minister P Chidambaram said while presenting the General Budget for 2008-09 in Parliament on Friday.
Besides a two per cent general cut in excise duty on all goods, the Finance Minister also proposed to lower the duty on all goods produced in pharmaceutical sectors to eight per cent from 16 per cent.

Excise duty on small cars, two, three wheelers, buses and their chassis will come down to 12 per cent from the current level of 16 per cent, while in case of hybrid cars the duty will be lowered to 14 per cent from 24 per cent.
However, in the software segment excise duty on packaged software would be raised to 12 per cent from eight per cent to bring it on par with customised software, which will attract service tax of 12 per cent.

Non-filter cigarettes, which were enjoying favourable tax regime, will now be brought on par with filter cigarettes, which attract higher taxes.

Goods of mass consumption like composting machines, wireless data cards, packaged coconut water, tea and coffee mixes and puffed rice will be exempted from excise duty against the current level of 16 per cent.

The Finance Minister replaced ad valorem part of excise duty on unbranded petrol and unbranded diesel by an equivalent specific duty of Rs 1.35 per litre. As such, unbranded petrol will now attract only a specific duty of Rs 14.35 per litre and unbranded diesel Rs 4.60 per litre. Mr Chidambaram clarified that this excise duty proposal will have no bearing on retail prices of petrol and diesel.

He also cut excise duty to eight per cent from the current 16 per cent on water purification devices, veneers and flush doors, certain packaging material and breakfast cereals. Excise duty on certain varieties of writing, printing and packing paper will be cut from 12 per cent to eight per cent.

Anti-Aids drugs, Atazanavir as well as bulk drugs for its manufacture will be exempted from excise duty. Mr Chidambaram shifted an excise duty of one per cent, called NCCD, to cellular mobile phones from polyester filament yarn, which is the only yarn suffering this excise duty.

To encourage cold chain facilities, the Finance Minister withdrew excise duty on refrigeration equipment like compressor, condenser units and evaporator of certain level. To bring parity between bulk cement and packaged cement, the former will now attract excise duty of Rs 400 per metric tonne or 14 per cent ad valorem, whichever is higher.

Employment drivers

Cement clinkers will be liable to excise duty of Rs 450 per metric tonne. A number of think-tanks, including the Prime Minister’s Advisory Council, have suggested cut in excise duties, especially on consumer goods to spur manufacturing.

High interest rates have impacted manufacturing, whose output growth slipped to 9.6 per cent in the first nine months of this fiscal from 12.2 per cent a year ago. Referring to excise duty cuts on pharma, auto and other sectors, the Finance Minister said, “These sectors are important becuase they are growth and employment drivers.”