Take steps to boost FDI, liquidity: ASSOCHAM to Govt

New Delhi. Already reeling under the acute liquidity crunch for years in the row, the industry has urged the Indian government to be considerate to effect necessary changes in the upcoming union budget to attract more foreign direct investment (FDI) into India.   

A week ahead of the Union Budget, the apex industry body the Associated Chambers of Commerce and Industry (ASSOCHAM) today impressed upon the government, RBI and the banks to ensure adequate liquidity into NBFCs, provide investment incentives and cut corporate tax rates for revival in the economic growth and creation of new employment.

Addressing a joint Press Conference here, ASSOCHAM president, Balkrishan Goenka, and senior vice-president, Niranjan Hiranandani sought specific measures to address the liquidity issues being faced by NBFCs.

“We have proposed on how we can change the FDI rule. After dismantling of FIPP, there is not a single nodal agency for the purpose. Today, any company coming from outside to invest in Indian has to run from different departments and ministries. There is only one dedicated desk for Japan and it is working very effectively. The similar desk should be provided for other 5-7 countries like USA, UK, Germany, Australia and Korea where major investment is coming to India,” said Goenka.

ASSOCHAM also has suggested considering changing the age-old definition of small & medium enterprises sector.

“We have proposed to the government of India that the criteria should not be the amount of investment on the plant and machinery but the annual turnover.  It should rather be below Rs. 50 crore for micro, 50-250 crore small and 250-500  crore medium,” said Goenka.

The ASSOCHAM chief added, “We demand 100 percent depreciation in the first year of new investment. A five percent cut in the corporate tax will revive investment.”

Talking about the significant potential in India’s tourism sector, Goenka said, “There are more than 1,200 islands which need to be developed into PPP model, give for 20-30-40 years in which they will create connectivity. Besides, visa on arrival facility should also be extended to ensure the hassle-free visit of foreign tourists.”

Certain segments like the automobile, construction, housing, NBFCs, aviation and exports are facing rough weather thanks to a combination of factors and require delicate handling in terms of policy and fiscal measures. On a parallel track, the GST Council may be impressed upon for rationalising taxes on vital sectors like automobiles and cement to lower slabs of 18 per cent for demand generation while sectors like jewelry making may be helped with lowering of import duty on gold, as prices of the yellow metal are shooting up in the international market. The revival of the NBFCs with the help from the RBI and the banks is key.

For boosting consumption demand and investment, the ASSOCHAM has made a recommendation for raising the personal income tax exemption to Rs 5 lakh and reduce the corporate taxes to 25 percent to spur consumption and investment. FDI threshold for some key sectors like Defence and insurance may be revised upward or eliminated.

In his remarks, ASSOCHAM Senior Vice President Hiranandani said, “The sectors like housing, real estate, construction have a huge multiplier effect on the economy, creating millions of jobs, adding immense wealth to the exchequer and lifting the consumer sentiment. So, there is a great expectation from the Finance Minister, particularly with regard to these sectors.”

Hiranandani said the Narendra Modi Government had done commendable work in affordable housing during its first term. “The focus on affordable housing is expected to continue with further refinement in the scope of the scheme for interest subvention. Besides, the issue of redevelopment of land and making land available in the metro cities for bringing prices in the affordable range would require urgent attention. He said with retail trade being the backbone of the economy, commercial real estate is critical for the growth of organised retail which must come up manifold in malls and specialized complexes.”

The suggestion for creating a stress fund for the stalled housing and real estate projects should be pressed for as with not too large a corpus for short term, projects worth lakhs of crores of rupees would come to fruition, providing a big relief to the home buyers and revival of sentiment in the sector.

The ASSOCHAM President Goenka said, “We are fully with the government for boosting the agriculture sector; while the aim of doubling farmers; income by 2022 may sound ambitious, it is doable if massive investment is made in agri and the entire rural infrastructure like irrigation projects, cold storage, supply chain, road and rail connectivity. Linkages with the food – processing industry would make a huge difference along with the technology-enabled aggregators. We expect the Budget to give a major boost to this sector by fiscal and administrative measures, taking states on board.”

Along with the agriculture, social infrastructure of education and health would also require immediate intervention and indications suggest that the government is fully committed. We would request the government to make further ease for the enhanced role of the private sector in both these sectors through Public-Private-Partnership mode.

“The Insolvency and Bankruptcy Code is an effective tool, but we need a broader approach to even avoid companies landing in the IBC process. A clearer approach would be available in the Budget and even afterward. Speedy disposal of IBC cases and lesser litigation can make a big difference to the resolution process,” Goenka said.

The focus on infrastructure is expected to continue and that is a big plus. Under the Bharatmala Project; road construction/upgradation for 35,000 KMs of national highways by 2022 would have a great multiplier effect. Investment in Railways for over Rs 1.50 lakh crore would also create great opportunities and scale up the country’s infrastructure. However, with no development financial institutions and the banks; inability to lend for long-term projects, a specialised funding apparatus for infrastructure projects needs to be created with the help of government and multilateral agencies like the World Bank.