By V Lakshmikumaran, Advocate

THE two sectors which have the potential to create a large number of jobs are manufacturing and services. In manufacturing, we have identified some industries which, with appropriate incentives, can throw up huge job opportunities. These include textiles, food processing, petroleum, chemicals and petro-chemicals, leather, and automobiles. In services, tourism and software can offer a large number of jobs. - P.Chidambaram (Finance Minister’s speech.

The above quoted statement in this year’s budget is undoubtedly noble and laudable. Employment generation coupled with growth in sectors such as tourism and software, would stimulate not only the economy but also serve to meet the social goals of this nation. However, as always, one must read the fine print, to ascertain the true impact that certain proposals will have.

Exemption from excise duty was being granted to certain labour intensive industries manufacturing soap, biscuits, locks, bricks etc without the aid of power for over three decades. Similarly, tax relief was also granted to certain industries manufacturing household goods and goods for mass consumption without a brand name such as food articles, tanning, rice and lock. In the name of rationalization, both these exemptions have been withdrawn by the Finance Minister. The social objective behind the conferment of this advantage was to strengthen the unorganized sector enabling them to compete with industries from the organized and mechanized sector. Withdrawal of these benefits as a simplification measure is simply put, going to bring these industries to their knees. Thanks to the so-called tax reforms, the lock industry in Aligarh will probably be locked up in a few months.

Given India’s intellectual manpower and the potential that the Information Technology sector has to boost the economy, the Government has in the recent past and continues to proclaim that it will keep promoting this industry. However, a holistic appraisal of the tax proposals for this industry presents a diametrically opposite picture. Packaged software available off the shelf will become more expensive with the levy of excise duty at the rate of 8% adding to the cost of computers. To add salt to their wounds, the Maintenance of Software services and Computer data processing software services which were earlier excluded from the definition of Business Auxiliary Services, have now been included and will be subject to tax at the rate of 12%. The standing dispute of the Industry with respect to maintenance services is tilting towards Department’s favour. In addition, the withdrawal of exemptions available to ERP implementation services classified under Management Consultancy service and, to call centers and medical transcription centers categorized as Information Technology services along with a new levy on Internet Telephony services will unnecessarily burden this industry.

Another avowed objective of the finance minister has been to promote the Tourism sector. The increased tax burden by way of levy of service tax will only decrease the attractiveness of India as a tourist destination. New levies on international journey by air other than for economy class passengers and for transport of persons by cruise ship would result in an increased cost for tourists. There has also been no change in the abatement (60%) that is available to the tour operators. The consequent decrease in the number of tourists would affect very adversely those dependent on tourism for a living as also the market players.

Such proposals very evidently present a mismatch between what the Budget as proclaimed by the Finance Minister purports to do and what it actually does. Such measures may augment public revenue for some time but certainly cost the exchequer and the citizens of India in the long run.