With the threat of a double dip recession looming large and fears of another slowdown in western countries, India Inc's progression is based on Pranab Mukherjee's ability to sustain consumer demand and provide a stable interest rate environment.
Industry's discomfiture arises from the persistent hyper food inflation which has knocked up prices of other goods and set in some sort of sluggishness in the industrial sector, while the efforts of the Reserve Bank to rein in inflation by raising key interest rates on more than half a dozen occasions has pushed up lending rates, affecting demand and growth.
Fearing inflation and interest rates to rule high during the coming fiscal, leading industry and commerce bodies have cautioned Mr. Mukherjee against withdrawing the stimulus package and further tightening of monetary policy as a tool to tame supply side induced food inflation.
Industry leaders hope Mr. Mukherjee would speed up reforms in agriculture and infrastructure and usher in policy clarity on FII (foreign institutional investor) inflows while presenting his budget for 2011-12. They also hoped that he would address their macroeconomic concerns and supplement monetary measures with fiscal and administrative steps.
Apart from effective supply side measures to plug loopholes, the focus must be on enhancing agriculture production and productivity. The call is for a 150 per cent tax exemption on expense incurred on new technology and inputs in agriculture sector and 100 per cent depreciation on all investments in physical assets.
A similar fiscal measure for boosting the industrial sector has been suggested. The demand is for increasing the depreciation rates on plant and machinery from 15 to 25 per cent in the wake of rise in input costs and interest rates which would eat into the profit margins, particularly hit will be the MSMEs.
Federation of Indian Chambers of Commerce and Industry President Rajan Bharti Mittal has cautioned against further tightening of monetary policy and exit from the stimulus stressing that various sectors such as chemicals, apparels, and consumer non-durables were still to reach the growth path and required further interventions.
He hoped the budget would address issues related to slowdown in the manufacturing sector.
To cope with the high cost of credit that had not only hit the operating conditions of businesses but also has led to a downslide in corporate investments, Associated Chambers of Commerce and Industry of India President Dilip Modi sought the Centre's intervention to make credit available at reasonable rates.
Confederation of Indian Industry President Hari Bhartia suggested that the government continue with the existing peak rate of customs duty, excise duty, services tax as several countries were still recording slow recovery and continue to provide various incentives to promote their exports.
With the 3G and broadband wireless access (BWA) auctions behind it, the government has little to fall back on to check its fiscal deficit over the next two financial years while its expenditures are slated to rise sharply. Fearing liquidity crunch and further hardening of interest rates, industry hopes the government manages its financial affairs well.
To provide adequate relief to consumers affected by the high inflation and to boost demand for consumer goods, increase in personal income-tax exemption from the existing Rs.1.60 lakh to at least Rs.3 lakh has been sought, besides making applicable the maximum rate of 30 per cent tax an annual income of over Rs.12 lakh.
Industry feared further slide in industrial growth if demand failed to pick up. Abolition of surcharge and education cess besides moderation of corporate tax, removal of cascading impact of dividend distribution tax and rationalise MAT as a specified percentage of the basic corporate tax rate were also cited as necessary conditions amid global concerns . Industry captains have expressed concern over the increase in the rate of MAT over the last four years.
To boost infrastructure, industry bodies have demanded that the levy of MAT on infrastructure companies be done away with particularly because it was diluting the incentives received under section 80-1A of the Income-tax Act.
The Construction Federation of India (CFI) has pleaded capital gains tax exemption for special purpose vehicle (SPV) companies on the lines of exemptions provided to listed companies under Sec. 10(38) of Income-Tax Act.
In addition, it has sought that the construction industry should be entitled for the benefit of additional depreciation which is now extended to the manufacturing industry under Sec. 32(iia) of the Act.
To spur demand for dwelling units, the ceiling of interest exemptions limit on housing loans should be raised to Rs.3 lakh from the existing Rs.1.50 lakh, stressing that the real estate sector was yet to free itself from the recessionary shackles.
To attract large scale private investment in the healthcare sector, a tax holiday benefit should be for ten years, especially to boost medical facilities in Tier-2 and Tier-3 cities.
Industry also favours encouragement to FDI particularly in the retail sector as entry of foreign players will open up greater competition. Their entry should be done with the stipulation that these chains would work closely with farmers to improve their productivity.
