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Relief on tax to help fertiliser cos
Sat, 17 Mar 2012 00:56:24 +0530
Business Standard Economy Policy News

Finance Minister Pranab Mukherjee on Friday slashed withholding tax on interest payments on external commercial borrowings (ECB) from 20 per cent to 15 per cent along with other boosters for the fertiliser sector. Industry players and analysts said the move would bring more investments into the sector. However, the Budget has been flayed for not doing anything substantial on the urea deregulation front.

Besides providing relief on withholding tax for three years, the Budget has proposed exempting import of equipment for urea projects from basic customs duty of five per cent for the next three years, abolish customs duty on coal for the next two years and extend 200 per cent relief on research and development (R&D).

The Budget also raised deduction on capital expenditure to 150 per cent from 100 per cent now and proposed to put in place a mobile-based fertiliser management system to track the movement of fertilisers and subsidies.
However, players said lack of supply of natural gas would continue to hinder investments from flowing into the fertiliser sector.

Though the finance minister expressed confidence India would become self-sufficient in urea production in the next five years, he did not touch upon the issue of bringing key fertilisers under the nutrient-based subsidy scheme.

“There is definitely some positive news for the fertiliser sector but we were expecting some more on the urea front,” said Suresh Krishnan, chairman and managing director (CMD), Zuari Industries Limited, referring to the deregulation of urea.

“I am quite optimistic on new investments now, as the government has indicated it desires to attract further investments in this sector,” Tarun Surana of Sunidhi Securities said, adding the only roadblock for investments would be the availability of natural gas.

On withholding tax, R Mukundan, managing director, Tata Chemicals, said,“This is a positive step for the fertiliser sector. This will reduce the cost of borrowings for new investments.”

Surana expects this to have a positive impact on all fertiliser companies along with the proposed investment-linked deduction on capital expenditure incurred at the enhanced rate of 150 per cent.

The government pegged the fertiliser subsidy for the next fiscal at Rs 60,900 crore, compared to Rs 50,000 crore in the current fiscal. However, subsidy for this year is expected to touch Rs 90,000 crore.

Also, players have viewed the announcement of paying subsidy in cash, instead of the earlier practice of bonds, as a forward-looking step.

The Budget however, could not enthuse investors in fertiliser stocks. Tata Chemicals ended 1.20 per cent lower at Rs 354.70 on the BSE, while Chambal Fertilisers fell 0.44 per cent at Rs 79.75 and Zuari Industries settled down 2.63 per cent at Rs 492.45. However, Coromandel International was up 1.70 per cent at Rs 302.75.
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