Fine Balance Required Between Fiscal Prudence and Stimulating Growth
In the pre-budget consultation meeting with the Ministry of Finance, CII has strongly urged for early implementation of GST as a surefire means of lifting investor sentiment and putting the Indian economy back on track. It is important to ensure that the Constitution Amendment Bill does not have the sectoral exemptions built into it. In terms of stimulus, nothing can be better than a well-crafted GST, according to CII.Elaborating further on the proposals to facilitate growth and investor confidence, CII stressed on meeting the fiscal deficit target and mentioned that a road map for adhering to the fiscal deficit target should be drawn up and announced in the Budget.
Commenting on the need for maintaining fiscal discipline, Mr Chandrajit Banerjee, Director General, CII, said 'fiscal consolidation is an important constituent of the reform agenda and imperative to maintain India's image as a stable investment destination. Hence, it would be important for the government to spell out a strategy for revival of growth while maintaining fiscal prudence'.
CII has, further, suggested the extension of short-term stimulus package involving reduction of excise duty on certain goods up to 31st March 2015. In the interim budget presented on 17th February 2014, this reduction in the range of 2-6 per cent was provided up to 30th June 2014. CII has also urged the government to bring down the general rate of excise duty from the current level of 12 per cent to 10 per cent across the board to revive demand in the economy.
Commenting on stimulus package, Mr Banerjee said that 'the time is not right to do away with the stimulus especially as the economy is in the midst of a slowdown and the manufacturing sector growth is in the red. At the present moment, it is a tough balancing act, since the industry would need fiscal support for some time to come out of negative territory'.
CII underscored the importance of augmenting revenue by creative interventions which would provide fiscal maneuverability to incur expenditure. CII has suggested that a 10% rationalization of subsidy expenditure, could result in savings to the tune of Rs. 25,000 crore. A holding company structure model for PSU Banks, diluting government stake in public sector banks to 51% and aggressively pursuing disinvestment were among some other suggestions for revenue generation by CII.
According to CII, the priority is to revitalize demand by fast-tracking project clearance. CII has sought reducing the threshold limit of CCI clearance from the current level of Rs. 1000 crore to Rs 500 crore.
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CII has strongly advocated the promotion of manufacturing as one of the priorities to kick start the flagging economy. Manufacturing requires sustained investment but equally enhances employment generation. Investment allowance as a concept provides an incentive for capital formation in the manufacturing space. With some modifications, its thrust and scope can be amplified.
CII has further recommended tax incentives such as allowing 25% accelerated depreciation for investments in plant and machinery, reducing MAT rate and dividend distribution tax to 10%, among others.
During the meeting, CII cautioned that financing investments could be a challenge, since financial savings are on the decline. To incentivize savings, we need to increase disposable incomes of households by raising the basic exemption limit and removing surcharges. CII also mentioned that the Central government should reduce its dissaving by lowering revenue deficit through reduction in subsidies and other revenue expenditure. The other way to find money would be to raise FDI limits in sectors like insurance, defence, etc.
CII maintained that a large part of investor sentiments are determined by ease of doing business in India, where India is ranked at 134 out of 189 countries. It has submitted that the government should bring a tax regime which is simple, stable and non-adversarial. Issues like doing away with retrospective amendments, further deferring GAAR, abolition of MAT on infrastructure and SEZs, improving the dispute resolution mechanism by designating it as a quasi judicial body and providing a timeline for implementation of reforms in tax administration would restore India as an attractive destination for doing business, according to CII's pre-budget proposals.
Mr Banerjee reiterated that 'Slowing economic growth, escalated fiscal deficit and high food inflation have been causing a downtrend in investment and consumer demand, leading to vicious circle. We must find ways to break this cycle, which can largely be addressed by providing a thrust to reforms unshackling the supply bottlenecks that exist in the system. The Union Budget 2014-15, with a government enjoying an overwhelming majority in the parliament, provides an opportunity to do this even while moving on path of fiscal consolidation'.
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