CII's Budget Wishlist
- Divest 100 PSU companies by December
- Set up dispute resolution mechanism for PPP projects
- Set up 50 train stations via PPP by December
- Reduct cost of creating good quality jobs
- Cut corporate tax to 18%; remove all incentives and exemptions
- Create National Innovation Fund to boost R&D
Industry body Confederation of Indian Industry (CII) is prodding the government to accelerate disinvestment of public sector undertakings and use the proceeds to fund infrastructure projects. In an interview with BloombergQuint, Naushad Forbes, President of CII says, "The last five budgets have not met their disinvestment targets. We need to set a deadline and, say by December 2017, we need to disinvest these 100 public sector units. These can include the 74 companies identified by NITI Analog."
The CII is also recommending the corporate tax rate be brought down to 18 percent and withdrawing all incentives and exemptions.
Here are edited excerpts from the conversation.
Budget Stimulus?
Do you think the government will give a demand push to the economy? Do you expect fiscal stimulus or a cash transfer of any sort?
I am not sure what form the fiscal stimulus should take. The form, I hope, it does not take, is a reduction in tax rates (for products). Because, I think that's a very expensive way of stimulating demand and am not sure how much effect it actually has. For example: if you reduce tax on an item by 10 percent – a major reduction – will that actually lead to greater consumption of that item? I am not so sure and it's a very expensive thing to do from a budgetary perspective. What I'd like to see is the government using this opportunity to reduce corporate tax and exemptions and personal income tax, at the same time. This will simultaneously reform the tax system and stimulate spending power in the hands of companies and individuals.
Fiscal Prudence Or Profligacy?
India needs to bring down the Budget deficit to 3 percent of GDP in the next financial year. Do you think the government could stray away from the path of fiscal consolidation?
I hope they stick to the target of 3 percent and avoid straying away from that. The best way of ensuring long-term growth for the economy is to keep our fundamentals solid and that includes meeting our fiscal deficit targets. If we need to spend more on infrastructure, then we should find the resources elsewhere, like for example, disinvestment or privatisation.
Also Read: Budget 2017: Will A 3% Fiscal Deficit Remain Elusive?
Where Are The Jobs?
Enough has been said about jobless growth. What needs to be done to accelerate creation of new jobs in the economy?
While many use the phrase jobless growth, I don't think it's an accurate phrase. If you look at the past 25 years, as the economy has grown rapidly, it has created millions of jobs. The problem is our jobs and employment statistics is focused on the formal sector and do not capture the jobs created in the informal services and contract labour adequately. As a result, we think the growth has been jobless. The problem is not creation or quantity but quality of jobs created. We have been creating millions of jobs but in contract labour and in informal services. These jobs provide little protection for labour and provide great flexibility to the employer. On the other hand, in the formal sector, where you have complete protection for labour and almost no flexibility for the employer, few jobs are being created.
One of our recommendations this time to the government is to reduce the effective cost of creating good quality jobs. We have recommended that the government expand one of its own schemes that it announced in the textile and apparel policy last year. This scheme provides for fixed-term employment where the government meets the employer's provident fund contribution for the first year. This is a significant way of creating good quality jobs. We have recommended expanding this idea to more job creating sectors of the economy, whether it is tourism, healthcare or food processing.
Kickstarting The Investment Cycle
Let's talk about investments. At CII, what are your recommendations to the FM to kick start the investment cycle?
I'll give you three examples. First, disinvestment or privatisation. The last five Budgets have not met their disinvestment targets. We need to set a deadline and say by December 2017 we need to disinvest these 100 public sector units. These can include the 74 companies identified by NITI Analog, which was the initiative of the last Budget.
Secondly, this government had appointed the Kelkar committee to recommend a dispute resolution mechanism for PPP (public private partnership) projects. We are saying set up the board by December and resolve all pending disputes.
Thirdly, this government announced that train stations will be developed through the PPP mode. They identified 100 stations across the country for this purpose. Now, can we by December redevelop 50 train stations?
Lower Corporate Tax?
You spoke about taxes. What have you recommended on bringing down corporate taxes?
We have recommended corporate taxes be brought down to 18 percent. Everyone said that's a huge drop in corporate taxes, how do you justify that? Simple answer. The official tax rate is 34 percent including surcharge and cess. We are recommending 18 percent including cess and surcharge. The effective tax rate is under 20 percent. So we are saying go with an 18 percent tax rate and remove all exemptions. Why 18? That's the MAT (Minimum Alternate Tax) rate. Given that companies have to pay that in any case, go to 18 percent and avoid grandfathering of existing incentives and exemptions. In one stroke, you can put in place one of the world's most attractive and competitive tax rates and sweep away all these incentives and exemptions that complicate our tax code. The only people who'd be unhappy with our proposal are tax accountants and big accounting firms that thrive on complexity in our tax code.
Also Read: Budget 2017: Arun Jaitley May Lower Corporate And Income Tax Rates But Hike The Service Tax Rate
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