CII has recommended a three pronged strategy for Budget 2021 centring around the key themes of growth, fiscal consolidation and strengthening of the financial sector that would help overcome the impact of COVID on the economy.
Confederation of Indian Industry (CII) presented its recommendations for the forthcoming Union Budget to Smt Nirmala Sitharaman, Hon’ble Minister of Finance and Corporate Affairs, Government of India at a meeting with industry leaders, held today.
Presenting the suggestions, Mr Uday Kotak, President CII said, “this year’s budget comes at a time when the Indian economy is recovering from the unprecedented shock caused by COVID. The Government has an unenviable task of ensuring a fine balance between supporting economic recovery and growth on one hand and ensuring macro-economic stability on the other. CII’s suggestions take this aspect into cognisance.”
Elaborating on the key themes of the CII recommendations Mr Kotak said, “CII has suggested that the budget proposals should focus on growth, and alongside look at fiscal management from a 3-year perspective. Aggressive disinvestment and monetisation of assets can augment government revenues at a time when tax revenues have fallen sharply”.
Mr Kotak further added, “Government expenditure should be prioritised in three areas- infrastructure, healthcare and sustainability. The budget proposals should also address two critical areas of boosting private investments and providing support for employment generation”.
Emphasising on the urgent need for financial sector reforms, Mr Kotak said “achieving the vision of India being a USD 5 trillion economy is contingent on having a strong financial sector. Government should bring down its stake in PSBs to below 50% through the market route, over the next 12 months, except for 3-4 large PSBs such as State Bank of India, Bank of Baroda and Union Bank. Government should also create, government owned, professionally managed Development Finance Institutions (DFIs) to finance key sectors of the economy, on the lines of KfW Germany, Brazil Development Bank (BNDES), and Korea Development Bank. This could be achieved by infusing equity in NABARD for financing agriculture and rural sector, SIDBI for financing MSMEs and IIFCL for financing infrastructure.
The highlights of CII suggestions presented by Mr Uday Kotak, President CII, to Smt Nirmala Sitharaman, Hon’ble Minister of Finance and Corporate Affairs, Government of India, today are as follows:
Policy Recommendations
Fiscal Management
Look at deficit management from a 3-year perspective given that the complete economic recovery is expected only in FY 22.
Last Budget provided details on off budget expenditures and their financing as an Annexure. Take forward this effort and bring in greater transparency in deficit numbers. This implies realistic revenue projections, avoiding off-budget borrowings and realistic estimation of costs of various schemes.
To augment revenues, consider aggressive disinvestment of both loss-making and a few profit-making PSUs, especially given the fact that the capital markets are performing well.
Also explore sale or leasing of government’s surplus land.
Financial Sector Reforms
Achieving the vision of India being a USD 5 trillion economy is contingent on having a strong financial sector. To achieve the same:
Bring down government stake in PSBs to below 50% through the market route, over the next 12 months, except for 3-4 large PSBs.
Create government owned, professionally managed Development Finance Institutions (DFIs) to finance key sectors of the economy. Infuse equity in NABARD for financing agriculture and rural sector, SIDBI for financing MSMEs and IIFCL for financing infrastructure.
An expeditious and efficient resolution process is critical for the health of the financial sector. The current resolution process is too time consuming, IBC needs enhanced judicial capacity.
COVID impact is expected to exacerbate the NPA problem, affecting the credit cycle. To address this issue, facilitate multiple bad banks, by allowing Alternate Investment Funds (AIFs) to buy bad loans.
Create a single specialized agency, manned with relevant expertise to investigate financial sector frauds. Alternatively improve coordination between the existing multiple agencies and strengthen their expertise.
Create Market Intelligence Units within the Ministry of Finance and the financial sector regulators, to pick up early signs of financial distress/fraud. This will help take timely preventive measures.
Stronger role for FSDC, to ensure seamless coordination amongst regulators for protecting the interests of depositors and small investors.
Government Expenditure for Reviving Demand and boosting productivity of the economy
CII suggests following areas for prioritising expenditure –
Healthcare – increase the expenditure to 3% of GDP over 3 years
Infrastructure for both rural and urban areas as infrastructure spend has one of the highest multiplier effects on the economy
Sustainability – to build an environment friendly modern economy
Further, two most critical areas that require immediate attention – private investments and creation of jobs.
Private Investments
There are early signs of private investments returning. To sustain this
Ensure stability of long term interest rates, at current levels. There are concerns that rising inflation could adversely impact long term bond yields and these need to be addressed.
Ensure a stable tax regime.
Ensure sanctity of contracts for government and quasi government entities, as well as for state governments.
Meaningful support for job creation
Section 80JJAA, provides for deduction of 30% on emoluments paid to new employees, for three years. This is available upto an emolument of INR 25,000 per month. Raise the cap to INR 50,000 per month.
Direct Tax Recommendations
CII's recommendations do not include any significant deductions/ exemptions, but focus on greater clarity in law, simplification of procedures and reduction of litigation.
Extend ‘Vivad se Vishwas’ Scheme:
As the operational challenges arising out of COVID are likely to continue for some more time, extend the scheme till 31 December 2021. Appeals pending on or before 30th June 2021 could be considered eligible for the Scheme.
Assessment, Litigation and Demand
Set timelines for disposal of appeals by Commissioner (Appeals) on the lines of timelines set for Dispute Resolution Panel.
Restrict number of adjournments by either party to two.
Provide option of fast tracking appeals at Commissioner and Tribunal levels on payment of a higher fee.
Allow all taxpayers, irrespective of the nature of adjustments to approach the DRP. There could be monetary thresholds, if required.
Increase monetary thresholds for Department to appeal for eg., INR 1 crore for Tribunal, INR 2 crores for High Court and INR 5 crores for Supreme Court.
Increase the number of Commissioner Appeals, benches at Tribunal and tax benches at High Court for speedy resolution. If required, recover the additional expenditure by increasing the appeal filing fees.
Indirect Tax Recommendations
Move towards competitive import tariffs over 3 years, with lowest or nil slab on inputs or raw materials (say 0-2.5%), standard slab for final products (say 5.00-7.5%) and intermediates at intermediary level (say 2.5-5%).
Exceptions could be considered on some products in the context of policy actions such as the Phased Manufacturing Programs and Production Linked Incentive Schemes, for promoting domestic manufacturing, besides some of the sectors, where tariffs are on the higher side owing to compelling reasons.
14 December 2020
New Delhi