What is playing on the nerves of the industry and commerce sectors is quite different this year than what it was when the Union budget was prepared a year ago. They almost secured what they wanted during the current fiscal, and it is no surprise that their chief demand now is that the Centre adopt a different approach to the budget for 2010-11.
They feel that the exercise should help the government put its finances in order. Industry and commerce bodies feel that their efforts at taking forward the recovery process will have little impact unless the Centre takes a hard look at its ways and means of reining in its fiscal deficit.
Union Finance Minister Pranab Mukherjee’s statement that the government would consider tinkering with the stimulus package has made private enterprise jittery.
All major bodies, including the Confederation of Indian Industry (CII), the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Associated Chambers of Commerce and Industry of India (ASSOCHAM) have urged the Finance Ministry not to withdraw the stimulus package.
CII president Venu Srinivasan is against sacrificing the growth momentum, especially when the economy is barely emerging out of a severe slowdown, while FICCI chief Harsh Pati Singhania reckons that withdrawal of the stimulus would hit the industrial sector. Assocham president Swati Piramal says it will prove to be counter-productive. But the issue upper most in their minds is the burgeoning fiscal deficit. They contend that fiscal deficit is not so much a matter of concern for the government as for the industry, since much of their enterprise will depend on how well the government reins in the problem.
A high fiscal deficit will have an adverse impact on the economy, hit private investment and push up interest rates. It will also restrain the RBI from calibrating its monetary policy.
The CII blames the fiscal deficit on the government’s expenditure on consumption rather than investment and hopes the budget will strive to set aside funds for private investment and augment demand.
They are pushing for reforms recommended in the Economic Survey, from deregulation of the prices of petroleum products and rationalisation of food and fertilizer subsidies to tapping of potential revenue sources, for instance, by expanding the service tax to cover railway fares and freights. But they are against undoing the cuts in excise and service taxes provided in the stimulus package.
The other measure they suggest is that the Centre expedite the disinvestment process to fund the expansion of social and physical infrastructure, especially in areas where the private sector is unwilling to tread. Exports must continue to get support as outlook for the global economy is still uncertain.
The delay in the introduction of the Goods and Service Tax too is a matter of worry for industry. They want the delay to be minimal, and the GST regime to be so flawless as to cut production cost by 10-15 per cent and fetch revenue in excess of Rs. 1 lakh crore to the government.
The rampant rise in the prices of food articles is also bothering industry. Mr. Singhania is against any tightening of the monetary policy to avoid food price inflation. The refrain is for improving the agriculture supply chain.
They also demand incentives for private sector investment in agriculture infrastructure and research and development. Resources for agriculture should be increased and a road map should be drawn up for launching a second green revolution.
They want the increase in the Minimum Alternative Tax (from 10 per cent to 15 per cent) be withdrawn. They also want the corporate tax revised because it effectively exceeds 35 per cent, discouraging foreign investments, and transaction cost reduced through reforms in property registration and taxation and export and import procedures.
These bodies also favour retaining the current peak custom duty at 10 per cent for some more time and increasing the depreciation rate from 15 per cent to 25 per cent and providing cheaper and easier credit access to small and medium units.
To generate demand and increase the purchasing power of consumers, the maximum rate of 30 per cent of income tax should be made applicable on an annual income of Rs. 7 lakh. Without stimulating demand through fiscal measures, these bodies feel, it will not be possible to draw up a strategy for investment-led growth.