The Hindu : Karnataka News : Govt. policies make industry see red

Online edition of India's National Newspaper
Tuesday, Oct 26, 2004

Karnataka

Karnataka

Govt. policies make industry see red

By Our Staff Reporter

BANGALORE, OCT. 25. A representative of large and medium industries in the State said here on Monday that the "pre-eminent position the State has attained through progressive policies of successive governments is in danger of being lost by the present Government, with its higher taxation and poor infrastructure record."

Specifically, the Special Entry Tax (SET), which the Deputy Chief Minister, Siddaramaiah, holds the Finance portfolio, had said would create an even playing field for local businesses, and the tax hike on industrial inputs such as diesel used to run large generator sets would make industry in the State uncompetitive, an office-bearer of the Confederation of Indian Industry (CII) told presspersons here.

(The Government today withdrew the special entry tax on 23 notified goods, which it had introduced early this month, following criticism from trade and industry).

K.K. Swamy, the chairman of CII's Karnataka chapter, said that as a result of the new levies the electricity-starved State would see industrial profitability dip by between 4.7 per cent and 8.3 per cent in the months up to April 2005.

Firms with greater dependency on power would take a 2 per cent to 2.9 per cent hit, Mr. Swamy, who is the deputy managing director of Toyota Kirloskar Motor Private Ltd., said.

"The signals [being given by the State to investors] are disturbing."

The "industry unfriendly" image was gaining currency and the heavy taxation and poor infrastructure did not help either.

"These perceptions need to be addressed immediately," if the State were to keep its investment hub image, he said.

Profit margin

According to a CII release, conventional industry in the State was already operating at profit margins of between 2 per cent and 7 per cent.

The new levies would hit costs by a tenth that would further impact profit margins, it said. SET could even cause some flight of capital to neighbouring States, it added.

The Government had done a volte-face on its policy on power generation and on investments in captive power.

The withdrawal of a tax rebate of 4 per cent on diesel and increase of tax on diesel from 17.5 per cent to 20 per cent had contributed to an "effective tax increase of between 4 per cent and 20 per cent in the State," the release said.

The cost of power in the State, at Rs. 4.73 per kWh, was over 38 per cent higher than in Andhra Pradesh, 36.7 per cent higher than in Maharashtra, and 15.8 per cent higher than in Kerala.

The State also imposed a sales tax of nearly 14 per cent on information technology products.

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