Corporate India’s profits boost govt’s tax kitty by 46%

Corporate Performance: Wages, however, grow by a modest 13.4%
MUMBAI, JANUARY 29: With the corporate sector churning out encouraging results for the third quarter, the government has become richer too.

Trailing the leap in profits, taxes in the third quarter have taken the biggest ever high jump. While the net profit of 935 companies shot up 57.8 per cent, tax outgo rose 45.8 per cent to Rs 8,785 crore in the third quarter ended December 2006. The rise in Q3 of 2005 was 18.4 per cent, while profit showed a 17.7 per cent increase.
But tax provisions of companies were rising quarter after quarter in the last three years. “I hope the government will reduce the corporate tax in view of the surge in tax mop up in the budget next month. The government should encourage companies so that it too can benefit,” said the chief of a finance company. Taxes have grown by 137 per cent, from Rs 3,695 crore in the third quarter of 2002 to Rs 8,785 crore in the last quarter.
Compounded, the biggest growth among income, profits, taxes, interest and wages during the third quarter of the past five years has been in net profits, followed by taxes. While turnover has jumped by 2.2 times, net profits have raced ahead by 3.3 times with taxes at 2.38 times. Interest costs, even while rising sharply over the past two years, have lagged, growing 1.44 times during the period. Wages too have stayed relatively behind at 1.79 times.
Ankit Miglani, director, Uttam Galva Steels, says, “The last nine months have been exciting for us. We’ve been able to make inroads into various global markets, along with consolidating our domestic market.” Corporate honchos say Q3 of 2006-07 was one of the best they had ever seen in recent times with both top and bottom line showing huge increases.
Growing consumerism from a 300 million strong middle class is actually driving bottomlines of companies connected with them, said Rishi Sahai, director, IndusView. From a household perspective, simple things like refrigerators and cars, considered a luxury for several years, are now within affordable reach thanks to the easy finance available. This has pushed demand and even expanded market in a big way, as is reflected in the financial results of the companies.
But there are warning signals. Interest costs of India Inc are also shooting up. Figures show that 935 companies paid Rs 31,748 crore as interest costs for the third quarter of 2006 against Rs 23,632 crore in the same period of last year. This 34.3 per cent rise in costs has to do with the rise in interest rates in the last one year. In the third quarter of 2005, the rise was 21.5 per cent, which came after a fall during 2003 and 2004.
India Inc is expecting further rise in interest rates after Wednesday’s credit policy review by RBI.
“The predominant market expectation this time is that of the reverse repo rate hike of 25 basis points. A hike in repo rate only from 7.25 per cent would widen the corridor between reverse repo and repo, will push up the cost of overnight funding from RBI and the signal on northward movement of rates will be taken,” said an analyst with BNP Paribas.
Even then, corporates are optimistic about the coming months. “Indian economy is poised to sustain its accelerated growth momentum led by an impressive performance of the manufacturing and infrastructure sectors,” said an official of construction major Larsen & Toubro.

Source : Indian express