The Confederation of Indian Industries (CII) has called upon the government to lower a broad range of taxes to encourage equity investments by both individuals as well as corporates.
CII president Vikram Kirloskar said while a strong government gives confidence and boosts investment sentiment, bringing India back on the high growth trajectory will require rationalization of taxes, with special emphasis on equity creation.
“There is a debt overhang. One cannot grow GDP (gross domestic product) on debt alone. We have to encourage equity and grow the equity," Kirloskar said in an interview.
He sought lowering of various types of taxes such as corporate tax and capital gains tax.
“Our request to the government is to look at reduction in tax on equity and not to do anything that will sentimentally hurt equity growth. If you are talking about reaching 8-10% GDP growth, we have to make equity highly viable. That is what will encourage people to invest," Kirloskar said.
The comments of the business lobby group’s chief come at a time when India grew at its slowest pace in five years at 5.8% in the March quarter. The growth rate during 2018-19 slowed to 6.8% from 7.2% a year earlier. Besides, the banking regulator said last week that a sharp slowdown in investment and moderation in private consumption is a matter of concern.
Since January, the Reserve Bank of India (RBI) has cut benchmark interest rates three times by a cumulative 75 basis points, a move to ease lending rates and boost consumption. However, banks are yet to fully transmit the rate cuts to retail consumers.
Keeping with the trend of an economic slowdown, domestic automobile sales have also been on a decline in the past few months. Kirloskar, who is also vice chairman of Toyota Kirloskar Motor, said one of the reasons behind the fall in automobile sales is financing costs and the liquidity squeeze in non-banking financial companies (NBFCs). The Lok Sabha polls also impacted car sales as potential buyers deferred purchases.
“Secondly, there is also some structural change. Metro traffic has increased across the country. It (metro) was only in two cities. Now, it is all across the country. Shared mobility has increased dramatically…That could be having a structural affect, which is good for the country," he said.
At a time when the government could not meet its direct tax collection target for 2018-19, Kirloskar believes that there is still scope for a lowering of corporate taxes in the federal budget that will be presented by finance minister Nirmala Sitharaman on 5 July.
“The only reason we are talking about corporate tax reduction and saying 18% with zero exemptions because we see it as revenue neutral. So, it may not affect the overall collection," he said, adding the reduction in tax could be gradual.
On indirect taxes, Kirloskar said he expects rationalization of rates under the Goods and Services Tax (GST) with fewer items on the bottom and top tax slabs. Without naming the items, he said more items could come under the ambit of GST.
As far as job creation is concerned, the government needs to look at sectors such as tourism, agriculture, food processing and textiles that could be big employment generators. For this, a separate panel or an official can study the hurdles in the process of job creation. Much like what Nandan Nilekani did for the government’s unique identification programme, Kirloskar said.
Nilekani is former chairman of the Unique Identification Authority of India and architect of the biometric-based Aadhaar identification number