Harsh Pati Singhania
1. Demand revival is the key
- Capacity utilization and profitability remain at low ebb, which is delaying private investments. Hence measures must be in place to encourage higher spending and boost growth recovery.
- Though there has been low inflation, but still consumer discretionary spending remains muted. To encourage spending/ revive domestic demand, we need more money in the hands of the people, for which the FM should
a. Broaden the tax base - only 3 per cent of population pay taxes, i.e. 3.5 crore people out of 125 crore. For comparison 45 per cent of US citizens pay taxes
b. reduce the tax burden on existing tax payers and incentivize spending
- At the same time more investments, particularly govt. spending in infrastructure is the need of the hour, as this will open up demand for various industrial goods. For e.g., projects like Bharatmala, Sagarmala etc., ongoing work on DFCs would not only provide impetus to demand for goods but also employment opportunities to a lot of people.
2. Take measures to increase competitiveness of domestic industry
The success of Make in India depends upon our competitiveness and improvement in ease of doing business.
The govt. has already made some effort in this regard, like moving towards digitization, simplification of procedures, single-window clearance etc.
- But much more needs to be done. Going by the state-wise rankings of states on ease of doing business, on an average only about one-third of the proposed reforms have been implemented across the country.
- The positive impact of digitization is yet to be reflected in the indirect taxation regime.
- Also too many regulations are coming in the way of ease of doing business. There is a need for alignment of rules and regulations under various Acts and laws, viz., land, environment etc.
- Poor labour productivity continues to hinder domestic manufacturing, for which labour reforms is the need of the hour. Govt. has rightly identified to bring about 44 Acts under 4 different codes and also phase out outdated labour laws. This must be expedited.
3. Address the inverted duty structure
- To promote domestic manufacturing, it is crucial that import of finished products attract duties at least as much, if not more, than what is levied on raw materials.
- But some sectors like tyres, steel, chemicals, electronics (desktop/ notebooks) continue to face inverted duty structure, which discourages domestic value addition.
- While the govt. has addressed this issue from time to time and certain sectors has benefitted, but most still remain out of the ambit.
4. Fiscal Consolidation should be undertake in a prudent manner
- The govt. is strictly following the fiscal consolidation path for which controlling the fiscal deficit at the targeted levels is imperative.
- While this is welcome from the perspective of holding on/ improving our sovereign rating status but it should not be at the expense of curtailing capital expenditure.
- Expenditure rationalization is more important than expenditure curbs.
- It is imperative that the govt. meet its social sector commitments (primarily subsidies) largely out of its disinvestment proceeds rather than tax revenues which should be primarily earmarked for capital expenditure.
Alternatives to #5
5. Reduce customs duty on wood logs/ chips
- India is wood-fibre deficient country, and raw materials account for 35-40 per cent of cost of paper production
- Basic customs duty on wood logs/ chips is 5 per cent, with total import duty comes to 9.72 per cent, which significantly undermines competitiveness of domestic paper industry
- There is a precedent of 0 per cent duty where the biggest importers of wood chips - China and Japan have 0 per cent import duty on chips
- Expenses incurred on CSR not allowed as deduction under Section 37(1) of the Act
- CSR expenses incurred under provisions of Companies Act should be allowed in computing business income as these are actual expanses and should rightfully be allowed for deductions
- Falling commodity prices have reduced energy cost for manufacturing industries, but uninterrupted availability still remains elusive.
- It is important to deleverage our power needs towards renewable sources like solar power, for which both fiscal and financial incentives should be provided.
- Already there is some headway as solar prices quoted for projects have come down to Rs 4.34/unit from about Rs 17-18/ unit in 2010.
- But India's power supply still remains heavily dependent on coal and it is set to remain so for some time. So it is critical that govt. fast-track investments in pending power projects like UMPPs to use our vast coal reserves.