ASSOCHAM Pre-Budget Interaction with Finance Minister Recommendations for FY16 Budget presented by ASSOCHAM President, Mr Rana Kapoor
The Union Budget 2015 is poised to be a game changer in reviving investment, economic growth and job creation, enabled by the next generation reforms to fast-track India's economic resurgence. ASSOCHAM is confident that the Government will live up to the expectations and deliver a 'Big Bang Budget' this year. The following are ASSOCHAM's short and medium term recommendations in this regard:(1) Fiscal Consolidation:
Disinvestment: Embark on a 5-year systematic program for disinvestment, especially in non-strategic sectors, with a rolling list of targets; aim to disinvest at least 0.5% of GDP each year (i.e., INR 52,364 crores)
Strong Expenditure Management Commission: Assimilate similar programs under a common theme (e.g. all food security programs) to improve execution, effective monitoring and prevent duplication
Create a 5-year roadmap for recapitalization of PSU banks (which will require over Rs 3.5 lakh Crore by FY18). Also set up a Bank Investment Company (BIC), under RBI, to act as a core investment committee and hold equity shares in PSBs.
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In the medium term, the Government should upgrade its tax infrastructure in line with GST implementation by the target date of April 2016
The Government should also bring dissemination of all subsidies (such as food, kerosene etc.) under the ambit of DBT
Excess cash balances of Central Govt. (currently with RBI) can be auctioned to SCBs to enhance banking sector's liquidity forecasting capability, reduce money market volatility and allow the Govt. to earn interest on surplus cash
(2) Incentivizing Financial Savings
Encourage deposits by reducing lock in period of bank deposits eligible for tax rebate to 3 years from 5 years and enhancing threshold for mandatory TDS on interest income to Rs 50,000 a year (from Rs 10,000 currently)
(3) Business Regulation
Clarity in FDI/ FII policy across sectors, with better Centre-State coordination to stimulate investments and improve business confidence
Review/ update of 100+ archaic laws and regulations, and reducing number of procedures and approvals involved in starting and doing business by creating a single window approval mechanism in each state, are critical
Specifically for Railways, announce a departmental restructuring with delineation of policymaking (with focus on medium to long term planning) and operations (with focus on day-to-day functions) to enable an efficient functioning of the huge monolith
Set up Rail Regulator to facilitate PPP, and drive international collaborations with countries like Japan and Russia (in addition to recent MoU with China)
Formulate a National Resources Policy & set up Natural Resources Regulator to ensure fair, transparent, accountable auction-based mechanism for allocation of high value natural resources
Avoid retrospective application of tax laws and strengthen scope of Advance Ruling mechanism for cross border transactions
Foster swift and transparent dispute resolution mechanism (including further developing e-courts and e-rulings)
Create enabling regulatory environment across States to effectively implement 'Swachh Bharat' campaign by calibrating existing environmental laws
(4) Fair, equitable and transparent Tax regime
Amendments to tax laws, other than the tax rates, be delinked from Budget. This will help make these amendments through discussions or debate with other stakeholders and the public at large.
Withdraw retrospective amendment made by the Finance Act, 2012. This will go a long way in creating conducive business environment and improving investor confidence.
Make tax compliance easier by removing separate levies of surcharge, education cess, etc.
Provide tax relief to corporates for mandatory CSR spend
In order to boost infrastructure development, treat infrastructure projects, particularly water, roads, power at par with SEZ projects to extend all applicable exemptions and tax benefits
Simplify indirect taxation structure, especially excise duty (2 slab rates) and customs duty (3 slab rates) to facilitate GST implementation
(5) Sectoral recommendations
The following are a few bold & actionable additional sector specific submissions for the FY16 Budget, for your kind consideration:
(i) Infrastructure
Infrastructure status for Real Estate / urban realty to unlock growth potential
Liberalize investment guidelines of pension funds & insurance companies for investment in infra debt
Allow floating of Smart City Bonds, within infra bonds category
Provide impetus for investments through:
One-time restructuring of non-infra projects (without any provisioning impact that have received CoD over last 2 years, in line with prudent guidelines)
Classification of fresh lending as PSL
Credit Enhancement mechanisms with relaxed capital requirements
Classification of Shipping, Shipyards, and other such important segments under Infrastructure (given the strategic importance of Defence)
(ii) Affordable Housing:
Allow Insurance and Pension funds to invest in the sector
Review Section 43C of Income Tax Act (taxation at circle rate) and restore 80 IB(10) (tax exemption on income derived by an undertaking engaged in development/construction of small dwelling units)
In the longer term, digitization of land records & Single window approval mechanism for sector. Also allow higher FSI, with relaxed density norms, for Affordable Housing projects
(iii) Urban Development
Bring integrated township development projects within definition of infrastructure - for promotion & development of smart cities
Establish regulatory authority to monitor work of Urban Local Bodies (ULBs) - build capacity in research, planning, project management and HR
Allocate funds to ULBs to enhance credit capability to upgrade existing urban infrastructure in all 53 cities.
Develop suitable framework for PPP in urban infra projects which will also enhance efficiency in delivery of urban services.
Extend pass-through benefits of REITs and Urban Development Funds for investment in public utility services like water, waste management, sanitation etc.
Declare Mumbai as Economic Capital Region (ECR) for multiplier effect on growth and prosperity
(iv) Agriculture
Single agricultural market to harmonize food and agri marketing policies across States
Set up a dedicated Geographical Appellations Fund (GAF) to promote Indian brands such as Darjeeling Tea, Nagpur Oranges, Ratnagiri Alphonso, which have potential to become global brands.
Encourage private and foreign capital in Food processing. PSL norms should be aligned for higher priority to the sector.
Encourage high value agriculture like horticulture, floriculture, fisheries, poultry and dairy to significantly enhance job creation and anchor an inclusive growth model.
(v) Tourism & Hospitality
Revive Section 80HHD of Income Tax Act 1956 (discontinued after FY06) in respect of deductions on foreign exchange earnings by industry
Remove Service Tax on foreign exchange transactions of tourism services
'Infrastructure' status for hotel projects with minimum 50-100 rooms (from current cost-based criteria of INR 200 Crore) and reduce availability constraints by expanding mid-segment hotels of 2-3 star categories.
Launch projects to create 50 tourist circuits around themes of Heritage, Culture, Himalayas, Desert, North East Region, Coastal, Sports and Films. Create a Hindu Circuit akin to Buddhist Circuit; explore synergy with North East, SAARC and South East Asian countries which have a strong 'India' connect.
(vi) Healthcare
Infrastructure status for sector, along with tax benefits. Also exemption from MAT and loans/financial assistance on priority basis
Implement 'National PPP Policy Framework for Healthcare'
Promote R&D by incentivizing capex for research and easy access to finance through Government schemes. Allow weighted deduction of ~250% on approved expenditure incurred on R&D pertaining to indigenous development of medical technology, biotech etc.
Single window clearance for approvals to commission hospitals with tax breaks and annuity-based financing system for setting up Hospitals with over 100 beds in Tier II & III cities.
Indian Healthcare should be accredited through Joint Commission on Accreditation of Healthcare Organizations (JCHO) for attracting international patients & spurring medical tourism.
(vii) Education
Improve equity in higher education for women, marginalized and differently abled persons
Revitalize ITIs & other vocational training institutes in labour intensive manufacturing segments
'Deemed University' status along with necessary accreditations to private universities - to be given on clear, established merit criteria
Fund various public schemes by finding alternate/ complementary sources of funding
Infrastructure grants to upgrade existing universities and colleges
Establish University Innovation Clusters
(viii) Manufacturing
Integrate the to be announced Foreign Trade Policy with the highly strategic 'Make in India' initiative, by:
Rationalizing inverted duty structure on manufacturing goods for sectors such as Chemicals, IT products, Metals
Providing incentives to 'Domestic Value Addition' especially for textiles and electrical goods, to dovetail these sectors strongly into 'Make in India' initiative.
Set up single window clearance through eBiz platform in all States (similar to that being implemented at the Centre)
(ix) Defence
Industry status for Aerospace; Infrastructure industry status for Defence - to facilitate funding and increase private sector participation
Cash surplus PSUs to invest in private sector shipyards & boost domestic shipbuilding industry
Mechanism to provide protection against Forex variations for private sector, akin to that for PSUs
[6] Other Long term recommendations
Greater focus on Livelihood security & Job creation by promoting skill development. Earmark funds for advanced skill development under the National Skill Development Fund for knowledge intensive sectors to enhance India's competitiveness globally and release the full potential of the 'Make in India' initiative by making India the skill capital base of the world
Address external sector vulnerability by creating the Gold Deposit Account (GDA) - incentivize citizens to defer buying physical gold, lower CAD pressure, promote monetizing of gold.
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