Budget must create Employment, Induce Demand and Investments: PHD Chamber

Budget must create Employment, Induce Demand and Investments: PHD Chamber

Budget must create Employment, Induce Demand and Investments: PHD Chamber


February 17, 2015
New Delhi

Budget must create Employment, Induce Demand and Investments: PHD Chamber

Mr. Alok B Shriram, President PHD Chamber of Commerce & Industry while complimenting the new Government for big-bang reform announcements said the forthcoming Union Budget 2015-16 is being formulated in a benign macro-economic environment at domestic and international level after many years. The economy is looking up and the real GDP growth rate has improved significantly.

The key drivers of economic growth would be creating more and more employment opportunities with increasing the share of manufacturing in GDP to 25%. While giving suggestions for creating employment with growth and competitiveness of the manufacturing sector, he said:

•       Around 50 crore people in India are under-20 years of age and, thus, will be under the working age in the next 20 years, implying a need for the creation of about 10 lakh new jobs each month to provide them gainful employment. However,  less than 10% of the workforce at around 5 crore is skilled only. An unskilled labour force implies that expansion of skill-intensive services cannot be the primary job creating solution for India. So, in this regard, manufacturing sector must grow fast with a sizeable contribution in the overall economic growth.

•        For the growth of manufacturing sector, the MSMEs segment should be looked in seriously. MSMEs have immense potential to create millions of new employment opportunities due to labour intensive production processes, however, MSMEs definition in India is limited and far away from global standards. It should be turnover basis; Rs. 1crore to 25Crore for Micro enterprises, Rs25crore to Rs100Crore for Small enterprises and Rs100crore to Rs1000crore for Medium enterprises.

•        Employment generating schemes would be critical to absorb vast pool of the young population. Vocational training at School level would foster employability and address the demand supply gap. There is also an urgent need to integrate vocational education with professional and technical education through a proper framework.

•         The budget must make significant allocations to the primary education so that the resources reach the marginalized sections of the society.   Overall expenditure on education sector must not be less than 6% of GDP with defined outcomes and deliverables.

•          Promote collateral free lending for MSMEs, where appropriate qualitative grading of Promoters and Projects should be available. Promote MSMEs focused NBFCs as they are more nimble footed than banks and a better alternative than unorganised financiers and money lenders.

•        Boost entrepreneurial growth; entrepreneurship-led economic growth will act as a catalyst not to just boost innovation but also create employment. The innovation fund should be given profound importance and it should be managed by the professionals to create efficiency and efficacy of the enterprises.

•          The new company law enacted in 2013 treats small, medium and large companies on same footing. The same level of compliance for MSMEs as large companies is going to cause huge burden. It requires several rounds of “overhaul” as several anomalies need to be still addressed.

•           The inverted duty structure, which is a major deterrent for manufacturing in India, should be completely corrected as domestically-produced goods cost more than imported ones.

•          The high transaction costs, both in terms of time taken and the money involved, are adversely impacting manufacturing competitiveness and overall business performance, the budget must provide provisions for reducing transaction costs. Radical decisions are needed on the time taken for paper work and permissions.

•         Enhance the excise limit for MSMEs manufacturing units. The small scale units are enjoying Excise Limit exemption of Rs1.5crore on sale ever since 1998. Since then there has been a drastic change in manufacturing costs, the limit of Rs1.5crore is not at all in consonance with current manufacturing costs and therefore the excise exemption limit for the MSMEs may be factored on the basis of difference between the WPI of 1998 to 2014 and the tax exemption limit may be enhanced appropriately.

•           Mr. Shriram expressed that the Union Budget must focus for improving the standards of living including basic amenities such as education for all, health for all, food for all, housing for all and safety for all and above all…skill youth of the nation for a better tomorrow and make “Sabka Saath Sabka Vikas” a reality.

•        Mr. Mahesh Gupta, Senior Vice President of the PHD Chamber said that inducing demand scenario would be critical to refuel our economic growth trajectory. Also the ease of doing business must be focused seriously as India’s ranking in the world tables is not comfortable at 142nd in the league of 189 nations. The present tax regime is not conducive for fostering growth, thus, there is an urgent requirement to make our taxation system simplified, rationalized with long term stability. He suggests that:

•          Provide fairly substantial relief to individual taxpayers in terms of increasing the income tax slabs so that more disposable income is available in the hands of individual taxpayers and this could push up demand that is the need of the hour vis-à-vis to reduce our dependence on external markets.

•           Induced demand in the economy will boost manufacturing processes in terms of enhanced capacity utilization and expansion, going forward.

•           To give a fillip to the construction industry, there is a need to incentivize home loan rebate further. It will reduce the effective EMI burden and generate demand in the economy.

•           Focus the health scenario of the nation by enhancing the income tax exemption limit of Rs. 15,000 for medical reimbursements to at least Rs. 30,000/-. It will help the people to tackle the ever increasing expenses on medicines.

•           Implementation of a well designed Goods and Services Tax (GST) at the earliest, by reducing state border taxes, will have the important consequence of creating a pan India common market for goods and services, which will be critical for our growth in the coming times.

•          Increase in dividend distribution tax should be withdrawn as the increase runs contrary to the need to expand Industrial / business activity, relieving the industry from the hardship caused by this hike in DDT.

•       The rate of MAT should below 10% to provide a fillip to manufacturing. The ceiling of Dividend Distribution Tax (DDT) should be at 12.5%. The developers and units in SEZs should be provided relief from MAT and DDT.

•         The rationalization of CENVAT credit scheme to be considered as a step towards GST, unnecessary qualifications / categorizations within the definition of ‘input’, ‘input service’ and ‘capital goods’ be done away with and all input side tax costs forming part of a business entity’s profit and loss account (and forming part of the value of the final output goods/service) should be allowed as credit.

•         Further, for the avoidance of double taxation on the same service, necessary amendment may be made to provide that once service    tax has been paid on a particular service either by the service recipient or by a service provider, no demand of service tax can be made on the other party by the Department irrespective of whose primary liability, it is to pay such service tax.

•         As the manufacturers in certain segments of industry like Polyester Fiber are unable to utilize the import duty credit against the duty on output, similar facility of refund should also be allowed to manufacturers who are unable to utilize the SAD credit of duty. Now that CST has been reduced to 2%, SAD should also be accordingly reduced to 2%.

•         The effective corporate tax rate works out to be 33.99% including surcharge and cess, bring down the corporate tax at 25%.

•      There should be rationalization of domestic transfer pricing provisions and as well sought simplification of Section 72A relating to amalgamation and de-mergers and also CSR expenditure should be allowed as an expense of the corporate.

Mr. Gopal Jiwarajka, Vice President, PHD Chamber while expressing his views said that infrastructure sector should be looked in seriously as we are lagging behind in the infrastructure sector not only with advanced economies but also with emerging and developing nations. Maintaining fiscal deficit at around 4.1% would also be a major crucial factor for macro-economic stability, going forward. The existing schemes of subsidies and social programmes need to be made more efficient and defined outcomes based. The government should consider consolidation of social welfare programs across Ministries and Departments.

•         Though the government has provided very lucrative FDI limits to attract foreign investments but creating a conducive business environment at domestic level would be critical to attract more and more domestic and foreign investments.

•         We need atleast 9-10% of GDP infrastructure investments every year to meet up the international standards in the next 20 years.

•        Reforms in the energy sector are needed to stem the increasing energy import dependence and making the policy conducive to facilitate transformation and adaptation.

•      An overall re-hauling of transport system needs to be done. There needs to be an increase in capacity of railways with modernization through state of the art technology.

•      Better utilization of allocated funds, through effective delivery mechanisms, should be an essential component of the developmental objectives of the Union Budget.

•         Enhance investments in agriculture sector -- In recent years, the share of Gross Capital Formation (GCF) of agriculture & allied sector in total GCF has hovered between 7 to 9 percent whereas it was around 18 percent during the early 1980s. Private sector investments are three fourths of total investments in agriculture.

•        Government policy needs to act as a catalyst by way of providing greater public investments in agricultural research, rural roads, power and irrigation. Higher public investments in these areas will boost private investments in other areas of the supply chain and enhance share of agriculture GCF in total GCF to 15-20% trajectory in the coming times which is desired to achieve a sustainable 4% growth in the sector to address the problem of food inflation and various other macro-economic problems caused by food inflation.

•         The budget should nudge entrepreneurs to invest more by unveiling investor friendly policies. These policies should include incentives for infrastructure and employment intensive sectors of the economy.


Koteshwar Prasad Dobhal
Consultant (PR)