Interim budget 2014: Excise duty cut to cause up to Rs 1,200-crore revenue loss for government

The government will lose Rs 1,000-1,200 crore over the next three and a half months due to reduction in excise duty on vehicles and consumer goods announced in the interim budget 2014-15 on Monday.

"I am talking about losing Rs 300-400 crore in 40 days (of the current fiscal). In April or May, perhaps we will lose about Rs 700-800 crore," Finance Minister P Chidambaram told reporters in a post-budget interaction.

The minister, however, added that the revenue loss "can be made up" if there is even a 5 per cent pick-up in sales.

With an aim to give a boost to the manufacturing sector, Mr Chidambaram in interim budget 2014-15 today announced cut in excise duty, or factory gate tax, on capital goods, consumer durables and vehicles.

Excise duty has been reduced to 10 per cent from 12 per cent on a range of consumer goods till June 30, 2014. The new government will present the full budget for fiscal year 2014-15, or FY15, after general elections due by May. The minister said it is only a "notional loss" of revenue which is very less.

Also, the duty has been cut on SUVs, cars, motorcycles and commercial vehicles in the range of 3-6 per cent to give relief to the automobile industry, which is registering unprecedented negative growth.

The duty cut, which will remain in force till June 2014, is likely to bring down prices of vehicles and consumer durables.

Mr Chidambaram in his budget speech said the rates can be reviewed at the time of the regular budget.

To a query, he said the three stimulus packages announced by government in aftermath of September 2008 global meltdown cannot be compared with the excise duty cut announced.

In the stimulus package also, excise duty was slashed.

"You cannot compare the excise duty reduction with the stimulus package. Both have different purposes," he said. The stimulus package, he said, was to ensure that the turbulence in the world economy does not affect India and that the growth rate is anchored at around 7 or 8 per cent.

"That was a large stimulus package...We borrowed money and spent money," the Finance Minister said.

"Today we are saying there are specific sectors of industry which are experiencing difficulties, growth is sluggish. I am saying you have to pay less tax, alright we give you concession on the tax, pay little less but you can sell more."

He further said that unlike the stimulus packages, this time the government is not borrowing to spend.

"We are simply saying we will take from you less tax, in hope that volume will make up for the reduction in tax rate. I don't think two packages are comparable," he said.