With roughly 90 per cent of industrial output falling under the 14 per cent excise duty slab, the 4-per cent Cenvat cut announced by the government today would easily translate into massive price cuts in consumer goods — durables as well as non-durables — say experts. “While the 8 per cent and 12 per cent excise slabs account for only peripheral goods including processed food items, etc., it is the 14 per cent slab, which will see the maximum price cuts,” S Madhavan, leader of the indirect tax practice at PricewaterhouseCoopers, told The Indian Express.

All the major end-user items like automobiles, white goods, textiles, etc. fall under this slab. With the compounded effect that the duty cut in raw materials and other industrial inputs will have, the final price for the end user is likely to fall by much more than just 4 per cent of the cost, experts believe. Also, given the contraction in demand, both domestic and abroad, and the fact that most businesses today are having to run on excess capacity, companies across the spectrum will be more than willing to pass on the duty cuts to their customers, Subir Gokarn, chief economist of Crisil, told The Indian Express.

As for whether the 4-per cent cut was sufficient, almost everyone believes it was. M Govinda Rao, director of National Institute of Public Finance and Policy and member of the Prime Minister’s Economic Advisory Council, who was expecting a 2-per cent cut in excise, said the 4-per cent cut was certainly a step in the right direction. Commenting on the fiscal package announced for investment in infrastructure, he added, “The scope of pump-priming through investment is limited because the government clearly doesn’t have the required fiscal space. Apart from investment, the best the government could have done was to reduce taxes.” However, Rao added, more important now would be for the state governments to follow suit and accordingly cut their state VAT rates so as to deepen the impact of the duty cut for the industry and consumers.

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