The Confederation of Indian Industry (CII) has come out with recommendations for bolstering economic growth and is looking forward to the growth rate picking up in the second half of the year. The slew of policy interventions suggested include some urgent short-term measures to address the current challenges and some medium-term enablers that will help push an inclusive growth agenda while expanding the job market. Some of the immediate measures highlighted include a combination of interest rate measures, export policies, labour regulations and a host of steps to improve GST functioning, among others.
Interest rate reduction
Importantly, an interest rate cut by 100 basis points at one go will encourage domestic demand and lead to greater consumption and investment. Further, targeted interest rate subvention for certain key sectors such as exports, housing and the MSME may also be considered along with provision of fiscal incentive packages for these priority sectors.
A fiscal stimulus package for increasing capital expenditure of the Government would be required. It is possible to relax the fiscal deficit target for a year as per the FRBM Act. States too should be requested to maintain their investments in infrastructure and new facilities.
An immediate depreciation of the Rupee by 5 per cent could help increase the export competitiveness of the country and boost exports. Appropriate intervention for the depreciation of the exchange rate can be expected to result in more export related jobs. Exporters would also benefit from better access to bank credit which currently forms just 1 per cent of total bank advances. Expanded coverage for insurance could be ensured by increasing capital of the Export Credit Guarantee Corporation (ECGC).
Among the various taxation measures to encourage growth, industry appreciates the intent of the Government to lower corporate income tax to 25 per cent. A roadmap for the reduction in corporate income tax rates to 18% could be drawn up to support investments. MSMEs in particular should be shielded from retrospective opening of tax returns.
On the GST front, initial transitional issues can be addressed by some procedural changes. These include allowing C form set-off, re-examining reverse charges which discourage unregistered firms, and correcting mismatches of higher rates on inputs vis-a-vis the lower rates on final goods.
For exporters, a slew of measures has been suggested such as fast-tracking refunds of input tax credit and exempting manufacturers who sell to exporters from GST payment, among others.
The one important area where the government can intervene is to increase import duties on gold to discourage gold imports and shift to financial savings.
Labour reforms are essential to boost employment, particularly in the formal and organised sector. Reinstating fixed term employment for all manufacturing sectors, and fiscal incentives for creation of incremental jobs by companies would support competitiveness. It is important to initiate reforms on issues such as raising the limit under Chapter V-B of Industrial Disputes Act to 500 and under Factories Act to 50. These measures would help creation of new jobs in a big way.
A key recommendation is to recapitalize banks through Government stake sale which would help in spurring credit growth. Given several challenges for major infrastructure projects, creation of a National Infrastructure Project Monitoring Group in the Prime Minister’s office to identify and address issues is central to smooth roll-out of new facilities.
“The efforts of the Government towards building a formal, organised economy are encouraging and this requires all players to go through a period of adjustment. Industry is keen to accelerate this process while also creating the necessary jobs which will lead into a virtuous cycle of higher incomes and demand,” said Ms Shobana Kamineni, President, CII.