Mumbai: Growth sustainability will be a priority for the Indian government as it sets its 11th Five-Year Plan targets. To maintain the 9% plus growth achieved since 2006, budgetary measures taken by the FM must keep in mind current global economic slowdown in general and US recession in particular.
Harish Sheth, CMD, Setco Automotive
Recent domestic economic data clearly indicates that there are signs of slowdown in the manufacturing sector, significantly in automobile and consumer durables.
During the last year, one of the major factors responsible for the negative growth in the automotive sector is the high interest rate.
• Address issue of high interest rates: To relook prevailing high interest rates, particularly when the general inflation level has been checked and brought down to below 4%
• Accelerate domestic demand: Interest rates in the country should have some linkage with typical global benchmark interest rates like Libor, US prime lending rates etc, which, in turn, will force banking sectors to bring down interest rates. This will have a consequential positive impact in accelerating domestic demand of various industrial sectors
• Address duty structures and bring at par with Asean countries: To urgently address the duty and tax structures e.g. excise duty, custom duty, income tax etc and relook prevailing high tax rates, especially when compared with Asean countries
• Build competitive levels: Take appropriate budgetary measures to enable domestic industry compete effectively in world markets
• Bring general excise duty to a uniform level of 14%: Custom duty rates are still far too high, particularly for import of important raw materials and critical inputs for the industry. As a consequence of low duties prevailing in Asean countries, (0 to 5% on raw materials) these countries can produce goods economically while enjoying a clear cutting edge over us in the global competitive arena
• Cut direct taxes: Recent data indicates that direct tax collections have crossed indirect tax collection. FM should consider a cut in direct taxes (income tax, corporate tax) to boost domestic consumer spending
• Extend deadline for EOU: Government had set the sunset line for Export Oriented Units (EOU) as on 31March 2009. To boost domestic export, government to consider extending the deadline by at least another two years to March 2011
• Set up exchange management measure: Rupee appreciation is a major concern for exporters, impacting practically every industry in the country.There is urgent need to implement appropriate exchange management measures. In its absence, with steep rupee appreciation Indian exports will continue to suffer badly in the immediate future
• Infrastructure development to be priority: One of the other major concerns for the industrial sector is rapid development of physical infrastructure (roads, ports etc). Timely and effective completion of all infrastructure projects currently under implementation to be taken up on priority and initiate participation of private sector in infrastructure
• Step up road safety, scrap vehicles that are over 15-years old: In automotive sector, government to clamp down on overloading of commercial vehicles and ensure scrapping of all vehicles that are more than 15 years old. This will push up safety standards and help generate fresh demand for new commercial vehicles in the country
• Provide grants and financial support for developing local industry: Indigenous industry to be promoted and production of frontier technologies to be ably supported. Focus to be on building competencies as companies get globally cost competitive while simultaneously adhering to and maintaining high quality standards
Harish Sheth is chairman and managing director, Setco Automotive Ltd