Even as the Union finance ministry has started preparations for the general budget, which is to be presented by the new finance minister Pranab Mukherjee most likely in July this year, there are apprehensions among the pharma industry that the new finance minister may withdraw the across the board reduction in excise duty from 8 to 4 per cent announced on December 8 last year as part of a stimulus package to the industry to tide over the sagging economic scenario.
The government had reduced the excise duty from 8 to 4 per cent on December 8 last year as a part of the stimulus package to partly compensate the industry for the losses made by the industry due to the global economic crisis. Like other industries, the pharma industry had also suffered huge losses due to the global financial crisis triggered by the housing bubble in the US. The government's action in reducing the excise duty by 4 per cent proved to be a boon to the sagging industrial activity in the country.
But, now there is fear among a section of the pharma industry that since the world economy is once again back on track as the worst seems to be over, the new finance minister may think twice before continuing the across the board excise reduction. The new finance minister may withdraw the stimulus package in his budget as the government is losing a substantial amount of money due to the package. Incidentally, in his interim budget, presented by the then stand-in finance minister Pranab Mukherjee on February 16, he kept silent on the issue.
For the drug manufacturers in the non excise free zones in the country, the continuation of the excise reduction is very significant as it had given them a level playing field vis-à-vis the manufacturers in the excise free zones like Baddi in Himachal Pradesh and Uttarakhand. The companies in the non excise free zones, who have been fighting for the survival for the last several years due to the disparity in tax structure, started getting business after the government decision to reduce the excise duty from 8 to 4 per cent.
It is reported that the central government's excise reduction from 8 to 4 per cent has hastened the return of several companies from the excise free zones which had migrated to these zones to take advantage of the excise benefits announced by the government earlier.