Calcutta, Feb. 28: Finance minister P. Chidambaram today unveiled a scheme to boost the struggling manufacturing sector in the country by introducing investment allowance, bringing cheer to India Inc.
The scheme will run for next two financial years and be available for high value projects with investment over Rs 100 crore in plant and machinery.
“To attract new investment and to quicken the implementation of projects, I propose to introduce an investment allowance for new high value investments. A company investing Rs 100 crore or more in plant and machinery during the period April 1, 2013 to March 31, 2015 will be entitled to deduct an investment allowance of 15 per cent of the investment. This will be in addition to the current rates of depreciation. There will be enormous spill-over benefits to small and medium enterprises,” Chidambaram said in his budget speech today.
Industry leaders and business chambers hailed the proposal saying that it was “one great kicker” to restart the investment cycle.
“The investment allowance provision is a welcome proposal to encourage capital expenditure on projects and will help in the capital formation. The investment allowance will encourage investors to think about capital investments in a more positive manner,” Koushik Chatterjee, executive director and Group CFO, Tata Steel, said.
Hemant Kanoria, chairman and managing director of Srei Infrastructure Finance Ltd, said there had been a perceptible drop in investment in India. “There will now be extra benefit to make investments. It is a good beginning,” he said.
Several industrialists, however, sounded a cautious note, saying the allowance alone will not be enough to bring the investment cycle back unless the government sorted out enablers such as land acquisition and cleared the mining mess.
Ambarish Dasgupta, head of management consulting of KPMG in India, welcomed the step but noted that it would be good for large projects only. “We have to see the fine prints, whether it will be applicable for investments at one go or for staggered investment over two years will also qualify. We also need to know if imported plant and machinery will get the same treatment or it will only be applicable for domestic procurement,” he pointed out.
He said the government must monitor the scheme closely so that there was no misuse of it. “It should not be used as a pass through — somebody buying plant and machinery for Rs 100 crore, availing the benefit and then selling it off,” Dasgupta noted.
Dipankar Chatterjee, senior partner of LB Jha & Co and past chairman of CII’s eastern region, said the proposal would effectively bring down the cost of investment for large projects. “It will be good for core sector projects such as power steel,” he added.
Paras Bothra, vice-president, equity research of Ashika Stock Broking Ltd, said the proposal was one great kicker but opined that more should have been done by the FM. “I wish some more incentives were offered such as reduction in excise duties,” Bothra said