'We need more banks in the country as well as a Development Finance Institution that can provide funds for industrial projects at low rates of interest for long tenures,' said Uday Shankar, president, FICCI
The Federation of Indian Chambers of Commerce and Industry (FICCI) has submitted a set of suggestions to the government to be considered for the upcoming Union Budget 2021-22.
"FICCI has had detailed discussions with its constituents and a comprehensive set of suggestions have been submitted to the government for consideration," FICCI said in a press release.
-The economy is recovering at a quick pace and this momentum needs to be sustained. Quick and timely action by the government has led to this turnaround. Next year's budget must prioritise growth-oriented measures and fiscal considerations should be secondary. The need for further fiscal stimulus remains. To buttress the demand conditions in the economy, government may consider the following suggestions.
-A scheme like MGNREGA for Urban Poor may be considered - this may include sanitation work, plantation of trees, maintenance of public places, etc.
-Interest subvention on Housing Loans of 3-4% for a period of 3 to 4 years will not only help real estate sector but have multiplier effect on many other industries.
-Consider making employee's contribution to EPF voluntary (without making any change in the employer's contribution). Also consider giving a three-year holiday for ESI contribution to both employers and employees. These will enhance the take home salary for individuals and will be particularly helpful in reducing the gap between gross and net salary for employees at the bottom of the pyramid.
-Accelerate the pace of infrastructure investments. National Infrastructure Pipeline is a five-year plan. We should look at front-ending the projects under NIP and try and complete 40-50% of the projects in the next two years. When the infrastructure sector moves, it pulls along more than 200 other sectors. It is also a key driver of unskilled employment generation.
2. Transforming social sector
-The National Education Policy is a step in the right direction. While it creates conditions for greater private sector participation in the education sector, we need more radical reforms to bring in private capital into this sector. The objective should be to go beyond flow of CSR funds into the sector. This is even more important now given the negative impact covid-19 has had on this sector. In this context, we would like to make the following suggestions.
-Apart from philanthropic efforts, for-profit HEIs should also be allowed to be set up. Even the Hon'ble SC in TMA Pai case has said that providing education is a vocation, and it is no longer a charity and a reasonable surplus should be allowed. But profiteering should not be permitted. Towards that end, Indian Societies and Trust Act could be amended to allow for profit companies to set up educational institutions.
-Under the National Education Policy, private higher education institutions must provide scholarships to students from the weaker socio-economic sections of society. While this proposal is well taken, private HEIs should have the freedom to fix the quantum of amount and percentage of students who would receive scholarship.
-Fees for private HEIs should be left to the market forces and if need be, institutions could have their internal fee fixation committees that would ensure that fees of existing batch of students is not increased. The fee regime should ensure that the institute is able to recover full cost of education and not merely the reasonable recovery of cost.
-HEIs and universities in India should be allowed to invest their surpluses / endowment funds in wider asset classes such as equity, alternative investment funds, investment trusts in addition to the currently permissible instruments such as debt, debt related instruments. This will help them generate higher returns and additional income.
-The need to strengthen our healthcare infrastructure has been fortified with the covid-19 crisis. The Government has already envisaged increasing public spend on healthcare to 2.5% of GDP (from around 1.3% currently). We urge the Government to start spending an extra 0.5% of GDP every year on health for the next five years.
-To strengthen health infrastructure in the private sector, certain tax incentives may be considered -
-Extend tax benefits under Sec 35AD (100% deduction on capital expenditure) to all hospitals. Currently it is applicable only to hospitals having minimum capacity of 100 beds.
-Weighted deduction (150% of capital expenditure) be allowed to healthcare providers for CAPEX incurred for fighting COVID pandemic (Significant fresh investment in medical equipment like CT scans, laboratory apparatus, setting up ICUs etc. has been done).
-Incentivise skill development in healthcare to bridge the huge skill gap. Provide weighted deduction of 150% of expenses incurred on skill development in healthcare sector (hospitals and diagnostic centres).
-To incentivise health insurance for individuals and encourage voluntary purchase, the quantum of deduction towards payment of medical insurance premium should be enhanced (to ₹50,000 from current ₹25,000).
-Consider launch of Health Infrastructure Fund and Medical Innovation Fund. This would facilitate greater access to capital for the industry.
-Medical Value Tourism (including AYUSH related tourism) can be a significant contributor to foreign exchange and should be promoted.
3. Capital for long gestation projects
-Government's focus on infrastructure development is highly appreciated. The National Infrastructure Pipeline is a welcome step as implementation of these projects will help accelerate growth, create employment opportunities, and also make Indian industry globally competitive. An equal focus is needed for long gestation industrial projects in areas other than infrastructure. The avenues for financing long gestation projects need to be widened -
-Establish a Development Finance Institution, on lines similar to NIIF, for financing mid-sized companies in India. Such a DFI can raise money from Sovereign Wealth Funds and other long-term institutional investors.
-Utilise a small part of foreign exchange reserves (US$15 or 20 billion) for setting up a fund and lend to Indian industry at say 6% in Rupees for new projects/ substantial expansion. The tenure for these loans should be 8-12 years. On these foreign exchange reserves the Government earns virtually nothing as interest rates internationally are extremely low. The aforementioned DFI can also be established using a part of our forex reserves.
-Review the Capital Adequacy Ratio for Indian banks. The capital to risk weighted assets ratio to be maintained by banks under the Basel III norms is lower than the norms stipulated by RBI for CAR for Indian scheduled commercial banks. These may be reviewed as it may help release capital for lending purposes.
-Establish more banks for supporting industrial and economic growth. Recommendations made by the Internal Working Group of RBI on ownership guidelines and corporate structure for Indian private sector banks should be taken forward. Proposals for allowing large well governed NBFCs to convert into banks and allowing large corporate and industrial houses to promote banks should be implemented.
-Launch Build India Bonds denominated in INR to raise global capital for a 20-50 year tenure, at very low interest rates prevailing across the world (around 5% in INR and around 1% in USD). This can be used for financing economic and social infrastructure projects.
4. Impetus to Future Growth Drivers
-There is a need to promote the digital economy as this will be a clear differentiator amongst countries going ahead. Start-ups in the areas of AI, ML and other future digital technologies must be incentivised. There should be an enabling eco-system with minimal regulations to ensure ease of operations for the start-ups.
-As we glance through the success of some of the large new age digital companies globally, we see that a good part of their success can be traced back to India. India is one of their key markets. We are also their solution developers. It is time that we think of creating technology solutions for some of our own development challenges [land record management, movement of migrant labour, skills mapping, food demand-supply as well price monitoring at the block level etc.] and offer them to the world. And this will be done by Indian companies. Government must look at infusing equity in such projects.
-Prime Minister's Wi-fi Access Network Interface- PM WANI is a great project. It will substantially improve wireless connectivity in the country and will spawn many small businesses and enterprises which can leverage the connectivity offered. Government must allocate a substantial sum for this project in the coming year.
5. Instruments for Raising Fiscal Revenues
-Pledge PSU shares to RBI and raise resources at low rates. The market value of government shareholding in PSUs will be around ₹15 lakh. A third of the shared can be pledged to RBI and government can raise ₹5 lakh crore. This can be a loan at a low rate of interest - repo rate.
-Accelerate planned disinvestment program. Privatisation should be in true spirit ensuring capital investment from private sector (domestic or foreign).
-Issue long term pandemic bonds in both the domestic and the international markets, which could provide additional space for the government to borrow.
-Make Sovereign Gold Bond Scheme on-tap. This will mobilise significant amount of household savings, encouraging a shift from holding gold assets.
-Monetise non-core assets of various Government departments.
-Monetise 'custodian of enemy properties', which could generate significant funds for the government.
-Tax specific suggestions
6. Convergence of GST rates (to three slabs)
-Currently there are 7 rate slabs for goods (0%, 0.25%, 3%, 5%, 12%, 18%, 28%) and 5 rate slabs for services (0%, 5%, 12%, 18%, 28%). In addition, Compensation Cess applies on select goods. Government should consider converging the existing band of GST rates to three in line with international standards. This will help resolve interpretation issues, reduce complexity and probability of disputes.
7. Centralized GST Registration
-With the introduction of the decentralized registration process, the cost of compliance and business process development has increased by manifolds. It is recommended that the concept of centralized registration for services as prevalent in the erstwhile service tax regime should be contemplated under the GST regime as well. This will enhance ease of doing business.
8. Constitute mechanism to have consultation with the industry
-Currently, there is no formal consultative route available to the industry to have discussions with the members of the various Committees being constituted by the GST Council from time to time for example Fitment and Law Committee. We believe that to strengthen the consultative approach by the Government, a mechanism may be developed and approved by the GST Council, wherein an opportunity at least twice a year may be provided to the stakeholders to present their case to the Committees constituted by the GST Council (in line with pre budget consultations). The mechanism would provide an opportunity to the industry in putting across their views before any final decision is taken by the Government.
9. Abolition of anti-profiteering provision in the GST Law
-Given that the tenure of National Anti-Profiteering Authority was initially prescribed for a two-year period and with GST law largely been settled, it is recommended that the determination of prices should be left to the market forces and the provision of anti-profiteering in the GST law should be discontinued with prospective effect. The lack of guidelines on the subject is just adding to ambiguity in implementation of anti-profiteering provision by the industry.
10. Provide Place of Supply of Research & Development services provided to foreign service recipients as location of service recipient
-India needs to attract FDI in Research and Development activities ('R&D') as India lacks cutting edge technology. Receiving prototypes, semi developed tech samples from abroad and Testing activity plays a pivotal role while conducting R&D activities. Such R&D activities are denied to be treated as export of services. Instead taxed under GST@18%, as the place of supply by virtue of section 13(3)(a) of IGST, is the location where the services has been performed i.e. India in this case. This is making the R&D activity uncompetitive and many companies are shying away from further making an investment in India. It is recommended that IGST law may be suitably amended to notify that the place of supply of R&D services provided to foreign service recipients, shall be the place of effective use and enjoyment of service i.e. location of the service recipient.
11. Incentivize investments in Infrastructure
-Measures to revive the growth cycle, creation of jobs are of paramount importance in the current scenario. A stimulus to investments in infrastructure can provide a major fillip to the growth engine, creation of jobs and spur in demand. Erstwhile Section 10(23G) of the Income Tax Act exempted income by way of dividend, interest and long-term capital gains arising out of investments made in an enterprise engaged in the business of developing, maintaining and operating an infrastructure facility. Benefit similar to section 10(23G) of the Act to incentivize investments in infrastructure may be provided in the upcoming Union Budget.
12. Provide fiscal stimulus to Innovation by incentivizing expenditure on Research and Development
-With the changed business scenarios and disruption in business across all industries due to COVID -19, there is need to step up the Research and Development activities. The present situation shows the importance of R&D to come out with new or cheaper versions of medicines for Indian and export markets. Also, the research and development must be incentivised going forward if the Government wants to achieve the objective of Atmanirbhar Bharat and Make in India. Several countries have low corporate tax rates along with R&D incentives, eg; Singapore (Tax rate 17 percent; 100 to 150 percent of R&D expenditure), China (Tax rate 25 percent; 150 percent of R&D expenditure). To encourage innovation of new products, services and technologies investments in research & development activities must be incentivised under the Income Tax Act.
Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.
Never miss a story! Stay connected and informed with Mint.
our App Now!!