Duty cut to help sector; higher cut required: construction gear companies

Facing a severe drop in demand due to slow execution of infrastructure projects, construction equipment industry today hailed the two per cent cut in excise duty announced by Finance Minister P Chidambaram in the interim budget.

However, the industry said a 4 per cent reduction in the duty would have been more apt given the size and importance of the segment.

"We as the construction equipment industry are happy with the cuts announced... However, given the importance of the industry, the capacities already created and its ability to generate more employment and entrepreneurs, excise duty reduction should have been higher, to the tune of 4 per cent," ICEMA president Amit Gossain said.

Reacting to the Interim Budget announcement, the Indian Construction Equipment Manufacturers Association (ICEMA) said the move "will certainly help this important industry that helps build infrastructure and is down by over 30 per cent in the last couple of years."

Excise duty on capital goods which includes bulldozers, graders, road rollers and consumer durable goods has been proposed to be lowered to 10 per cent from 12 per cent. The rates are effective up to June 30, 2014.

Finance Minister Chidambaram has also said in his budget speech, "To encourage domestic production of specified road construction machinery, I propose to withdraw the exemption from CVD on similar imported machinery."

The ICEMA has asked the government to implement relief measures saying the "industry has already witnessed a negative growth of over 30 per cent during the past two years and is recording new lows every month in sale of equipments."

It had demanded excise duty cut on earthmovers and construction equipment in order to help survive the adverse scenario, saying the severe slowdown in demand has led to glut of inventory of equipments with the manufacturers and its authorised dealers.

It said the situation has reached a stage that is forcing industry players to resort to periodic shutdown at their manufacturing facilities.

Meanwhile, leading construction firm L&T said the excise duty reduction is for a limited period and sustained initiatives were needed to boost the sector.

"Excise duty reduction for capital goods while being a positive, has a limited shelf life till perhaps June 14," Larsen & Toubro (L&T) said in a statement.

Measures to boost the health of manufacturing sector in general and capital goods in particular would require sustained initiatives over the next several years, it said.

"Thrust to skill development, infrastructure and likely increase in capex spends of PSUs will aid recovery of capital goods industry," it added.