The finance ministry is weighing an industry proposal for reintroduction of investment allowance and allowing higher depreciation to boost industrial growth by way of tax breaks.
The push to the industrial growth, which showed early signs of recovery posting positive numbers of 1.4 per cent in April, would hinge both on consumption and investment-led economic expansion, an official in the Finance Ministry said.
Restoring economic growth has been listed among the top priorities of the new UPA government. "It will be only through the growth that the larger objective of employment generation can be realised...But to achieve growth, we need investment friendly policies," the official said.
Industry bodies like FICCI, CII and Assocham have made a strong demand for reintroduction of investment allowance in the coming Budget.
If such an allowance is allowed, deduction of a particular percentage of the amount spent on new plant and machinery would be deductible while computing taxable business profits.
The government had allowed such an allowance of 20 per cent till April 1990.
The Finance Ministry is examining the industry proposal weighing it against the revenue implication particularly at a time when the government's tax kitty is facing a strain in the backdrop of slowdown in economic growth.
"Its a chicken and egg situation...Growth would need tax breaks. On the other hand, tax breaks can come only if there is a growth," the official said. However, the decision would be taken by Finance Minister Pranab Mukherjee in consultation with Prime Minister Manmohan Singh, he said.
Likewise, the ministry is also considering whether hike in depreciation rate to 25 per cent from 15 per cent at present can be used as a stimulus to the economy.
Industry leaders like FICCI President Harsh Pati Singhania in their meeting with Mukherjee had emphasised for fiscal measures to boost the economy.
While slowdown in consumer demand has been a bane of the industry facing capacity under utilisation, there is a strong argument not to postpone fresh investment. This is because there is always a lag in implementation of the projects.
