Budget must be infrastructure driven & demand boosting along with a special focus on MSMEs: Sh. Sanjay Aggarwal, President, PHDCCI

No. PR- 159

December 15, 2020

New Delhi

Budget must be infrastructure driven & demand boosting along with a special focus on MSMEs: Sh. Sanjay Aggarwal, President, PHDCCI

The Union Budget 2021-22 is being presented at a very crucial time when the Indian economy is on the recovery path from the daunting impact of pandemic COVID-19. On the back of string of bold economic reforms announced by the Government in last few months, significant recovery in the key economic and business indicators has instilled expectations of a strong and sustainable growth in positive territory in the coming quarters, said Sh. Sanjay Aggarwal, President, PHD Chamber of Commerce and Industry in a press statement issued here today.

According to projections based on the EBM Index (Economic and Business Momentum Index) of PHDCCI, the growth trajectory will become positive in H2 of 2020-21 and overall growth will be (-) 7.9% in FY 2020-21, said Sh. Aggarwal.

Going ahead, demand creation will have a multiplier effect on all sectors of the economy including enhanced production possibilities, increased investments and employment creation. Increased spending on infrastructure will rejuvenate the aggregate demand. Undoubtedly, robust growth of infrastructure is the key ingredient to realize the vision of Atmanirbhar Bharat, he said.

At this juncture, the Government should consider raising investment funding for the National Infrastructure Pipeline (NIP) through borrowings from overseas markets by issuance of overseas bonds through an SPV that could act as a mega Development Financial Institution- DFI. The DFI could initially finance public sector infrastructure investments, and, as the economy picks up steam, could also finance the private sector infrastructure projects. In the past, Governments around the world have often used DFIs to fund industrial and infrastructure investments. Financial as well as technical support extended by the DFI would also help in efficient and timely infrastructural development in the country, said Sh. Sanjay Aggarwal.

Overseas borrowing will allow the government to bring in diversification in its borrowing along with significantly reducing dependence on the domestic market, thereby leaving room for private sector to raise capital for investments from the domestic money market. Analysing the Debt to GDP ratio of G20 economies, India stands at 14th rank with total debt to GDP ratio at 127.6% comprising of 55.3% as private debt and 72.3% as public debt. Also, we have significantly large FOREX reserves of US $ 575 billion as on 27th November 2020, he said.

Strengthening the MSMEs sector must also be on priority in the forthcoming budget. The value chains of MSMEs should be enhanced; making them more structurally competent to add to their efficiency, increased share in manufacturing sector, employment generation and the country’s overall economic growth. The focus should be on ensuring provision of hassle free disbursements of loans vis-à-vis enhanced liquidity for MSMEs, said Sh. Aggarwal.

Reduction in Tax on MSME firms working as Proprietorship/Partnerships: Vast majority of MSMEs are either sole proprietorship or partnerships. Hence, taxes should come down on these types of businesses, going forward. For such businesses, it is suggested that the maximum tax slab be brought down to 25%, said Sh. Aggarwal.

Costs of Doing Business should come down for the industry particularly the MSMEs. There must be focus on the implementation of government order on reduction of performance bank guarantees. One major cost of doing business that has been very kindly been reduced by the Government of India is the recent announcement of doing away with EMD requirement and the reduction of all PBGs to a maximum of 3% of contract value as against 5% to 10% asked for till by Central & State Government and PSU procurement agencies. Since many government departments and PSUs as also the banks are delaying and/or raising procedural issues in release of excess bank guarantees, it is suggested that the strict instructions must be issued to the PSUs and Government departments as also the banks to release immediately the amount held up as extra bank guarantees.

Although, procedural requirements have been relatively reduced and the communication between Government departments has become transparent and hassle free, however, the cost aspect still needs to be relaxed further. The Government should focus on further reducing the cost of doing business in the country including the costs of power, costs of capital, costs of compliances, costs of logistics, costs of land and availability of land and costs of labour. The cost competitiveness of our businesses enterprises should be enhanced and a level playing field should be created. Reduced costs of doing business and level playing field in the country will not only increase the competitiveness of our exporters but also reduce imports of the items where India has domestic capabilities, said Sh. Aggarwal.

Export competitiveness and better connectivity with Global Value Chains must be focused : The global supply chains are undergoing a major transformation due to disruptions caused by COVID-19 and time is most opportune for India to capture a bigger share in the world economic system and develop strong and resilient local supply chains while remaining a part of the global supply chain network. We appreciate the provision of Rs 1.46 lakh crore under Production Linked Incentive (PLI) Scheme for 10 champion sectors will help link India to global value chains, encourage exports, give companies a competitive edge in global market and make India a global manufacturing hub in the coming times. There are many industries which have been included in the PLI scheme having sufficient unutilized capacities. Therefore, the criteria for additional investments should not be enforced for such industries.

Furthermore, focus should be put upon building of the value chain in the country instead of importing components and doing assembling activities. This will increase our economies of scale, reduce cost, ensure quality & dependability, increase traceability and help in maintaining speed of delivery. These are the crucial elements which will make our export products attractive at the global level, said Sh. Aggarwal.

Export income is requested to be made tax free for MSMEs for 3 years and income of large enterprises from incremental exports (Y-o-Y) be made tax free. This will help in partly compensating the additional cost of logistics and other bottlenecks which Indian exporters face. Use of better technology & designs, greater Research & Development (R&D) and competitive manufacturing would significantly help in promoting MSME exports and strengthen the value chains of MSMEs while making them more structurally competent to add to their efficiency and make India a manufacturing hub & leading exporter in the coming times. We suggest that the focus should be put upon One District One Product (ODOP) Scheme that aims to give boost to the traditional industries and enable the people to gain expertise in one product. The ODOP scheme can help in preserving and developing local skills and craft, provide significant exposure to our industries especially to the Micro, Small & Medium Enterprises (MSMEs) and generate gainful employment opportunities across the States.

Special support to tourism sector is needed: Due to the daunting impact of COVID-19, tourism industry has been witnessing massive distress in respect of loss in revenues and fall in tourist footfall. Going ahead, an exclusive stimulus package along with dedicated reforms are required for this sector to revive from the impact of COVID-19 and move to the path of higher growth trajectory, he said.

Agriculture & rural sector must be at the forefront: The agriculture sector is a low hanging fruit which will continue to show positive growth on the back of government support to the farm sector. It is suggested to increase the public investments in agricultural infrastructure; strengthen access to credit to farmers; adopt of direct transfer of subsidies on electricity, fertilisers, among others, urged Sh. Aggarwal.

Focus on education and skill development: On the socio-economic front, focus on twin merit goods of education with skill development and basic health with safety must continue with a longer-term vision. The recently announced New Education Policy 2020 is a revolutionary step in the history of education system by making way for school and college education to become more equitable, inclusive, holistic, flexible and multidisciplinary suiting to the needs of 21st Century. Going ahead, education and skill development will hold a crucial place for supporting India in its journey towards being AatmaNirbhar. It is suggested that the education expenditure as a percentage of GDP needs to be maintained above the level of 3% of GDP. There is a need to enhance and incentivize research & development, skill set up gradation, usage of digital technology, application of industry 4.0, creation of green jobs, among others, in the country, he said.

Ensuring vital health infrastructure: The COVID-19 epidemic has exposed the need for a robust public health system and increased investment in health infrastructure in the country. It is suggested that the health expenditure as percentage of GDP should be increased to 2% of GDP to build hospitals, setting up training institutions, among others all across the country.


Media Division

PHD Chamber of Commerce and Industry