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Focus on incentivising investments

By Our Special Correspondent

CHENNAI SEPT. 29. There is a need to "incentivise'' investment and encourage capital formation in the present situation, whereby there is no shortage of "investible resources'' in the country but only "shortage of investment,'' according to S. Narayan, Economic Adviser to the Prime Minister.

The boom in foreign exchange reserves, low interest rates and a marked improvement in the financial sector with a sharp reduction in non-performing assets all bode well for growth, provided savings are converted into investment, Dr. Narayan said here today.

Addressing the Chamber Day meeting of the Madras Chamber of Commerce and Industry (MCCI), he said banks and financial institutions such as the IDBI were hesitant to invest for the long-term and were going in for investment in government securities. The FIs should resume their role as development financial institutions. The stock market had at the same time experienced a revival thanks to the lowering of interest rates.

The "bottomlines'' of companies had improved substantially but this had been achieved mainly through a reduction in interest costs and improvement in productivity and efficiency. This, however, accounted for a jobless growth. The next improvement should come by way of a "topline growth'' of companies by way of increase in production and sales and this alone would boost employment. To encourage investment, the time gap between incorporation of businesses and their launch of operations as also the time needed for closure where necessary should be reduced, Dr. Narayan observed.

He said the Government's role in incentivising investment related to expectations that were linked to investment decisions — expectations in respect of stability, especially in taxation, and market demand. Already, some industries like tractors and agricultural pumpsets were seeing a revival of demand. This led to the question whether the country could identify industries in which it had competitive advantage and support them.

Manufacturing industry in Tamil Nadu, especially light engineering, was driven by export demand in the automobile sector.

This should be consolidated by facilitating research and development in new technology to meet the needs of vehicles of the next generation, Mr. Narayan said.

He said the tax:GDP ratio would improve in the next few years, with the expected completion of the TIN (Tax Information Network) by October 2004. The TIN would enable capturing of information on any transaction above a specified size.

"If the railways can operate a nationwide passenger reservation system on a real time basis, there is no reason why India, with its IT (information technology) expertise, would not be able to bring about an effective TIN,'' he observed.

The President of the MCCI, B. Natraj, said while the percentage of people below the poverty line had declined in the last thirty years, the absolute number of such persons had actually increased to alarming proportions as a result of the increase in the population.

"While we are all concerned about the divisive effects of religion-based conflict, the conflict between the have and the have-nots can bring our magnificent economic edifice to the ground in no time. This should be the concern of policy-makers, even as they guide the country to greater economic heights,'' he said.

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