IBNLive Chat: '9 pc growth only if rural economy strengthened'
IBNLive Chat: '9 pc growth only if rural economy strengthened'
G Srivastava, Head, Economic Policy, CII, answers queries on economic outlook and industry expectation from FM's Budget.

As the D-day nears, all eyes are set on Finance Minister P Chidambaram. India Inc. awaits with bated breath as the FM gears up to table the annual Budget in Parliament.

What is there for the industry in Chidambaram's 7th Budget? Will the US recession have an impact on the Indian scene?

To find out all the answers, IBNLive.com organised an online chat with G Srivastava, Head, Economic Policy, CII.

Here we reproduce the full text of his chat.

Harron: Sir, what about the women tax rebate this year?

G Srivastava: There is already a differential tax exemption limit for women income earners. To encourage women to take up jobs and to put more purchasing power in their hands, let us hope that there is something in this budget too for women.

Sonal: Can senior citizens look forward to any good news in this Budget? shouldn't the FM give sops to single and working women?

G Srivastava: Corporate contributions to senior citizen / veteran homes should be provided with tax benefits.

Pratigyan Das: Sir, what are the three things you would like to be introduced in this year's budget?

G Srivastava: Initiatives that would build people through education, skills development and healthcare. Initiatives that would strengthen rural economy through greater role for private sector in the agriculture sector, initiatives that would enhance competitiveness of Indian economy through encouragement to R&D, implementing financial sector reforms and greater focus on infrastructure development.

Aditya Badami: As the world is moving to a carbon free economy, do we see the Finance Minister coming out with plans to help the Renewable Energy Industry.

G Srivastava: CII has recommended creation of a climate-friendly technology fund to financial all those technologies that are environment friendly. This fund could finance clean technology development.

Raghav: I think we all agree that we need a wider participation in the economy from all sections of society. How do you think the FM can improve development of rural economy better. I think thats required for a long term sustained growth of indian industry.

G Srivastava: Inclusive growth is necessary to sustain high rates of growth. strengthening then rural economy is of pivotal importance, providing an enabling legislation for universalisation of financial services through Micro Finance is also importance. Moreover, creating livelihoods for the major sections of the population that lives in the rural areas is also necessary. CII's rural business hubs initiative was adopted by the Government and CII has recommended that the RBH allocation should be scaled up to 1,000 crs this year.

Rajat: Should we be expecting some relief package for export sector from this budget?

G Srivastava: CII has recommended sections 80 HHC - HHE to be reintroduced to provide relief to exporters.

Mohan: Chidambaram claims the credit for the GDP growth for the past few years. But the truth is it is because of great people like Narayana Murthy India could achieve this growth. Now the US is in trouble and it will have an impact on our IT business which was the real engine for our economy for the past few years. Total tax paid is going into the drainage called Government. Chidambaram is looking around for inclusive growth when he himself is the hurdle for inclusive growth. What is your comment on this. In such a situation how do you think this economy will grow 9 per cent per annum for the next few years. Thanks

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G Srivastava: The economy can grow at a sustained 9% plus growth if we focus on building people, strengthening rural economy and enhancing competitiveness.

Raghav: How would you recommend our FM to increase the pace of infrastructure development?

G Srivastava: Infrastructure needs loads of investments (US $ 500 billion plus for the next five years). There is an urgent need to develop the corporate bond markets. Dr. RH Patil recommendations should be implemented. Further, capacity building on developing bankable projects also needs to be addressed. CII has made specific recommendations to boost infrastructure development, which is necessary for enhancing competitiveness of Indian economy.

Karthik_07: Whether they will announce any kind of policy that will boost the current market situation and also to expand the GDP rate?

G Srivastava: All budgets have a target impact and we hope that the forthcoming Budget would address issues and provide impetus to enhance inclusive and sustainable growth in the medium to long term.

G K Kashyap: If the recent projections of indicators( growth rate, IIP figures, SENSEX et al ) are to go by, then apparently, we too, are on a slowdown ( or is at least imminent). In such a scenario and keeping in mind the election year, will the FM present a populist budget? What can the industry expect from the FM?

G Srivastava: The advance estimates have projected GDP growth to be at 8.7 per cent which is .9 per cent lower than last year. This signifies moderation of growth. however, we need to wait and watch for the final numbers. CII has also recognised this fact and has suggested measures that will promote inclusive and sustainable growth.

Venkat:Does CII have any plans to treble India's merchandise exports and increase competitiveness against China in manufacturing? This includes the structural weaknesses Indian industry faces that can be addressed, cost of capital, labour laws and single window system to handle logistics of exports.

G Srivastava: CII has been engaged in competitiveness enhancement initiatives for Indian industry including total quality management, environmental management, lean manufacturing, supply chain management, product design, innovation, technology and many other areas. The objective is to enhance global competitiveness of Indian industry. I would urge you to please check out CII website - www.cii.in

Vijaykumar: This year plan for the manufacturing sector (for automobile industry) is their is any cut in the excise duty or any other duty is added? My second question will be what about the Custom duty is their is any change or not?

G Srivastava: I am not the FM and hence I cannot answer your question directly. However, I would like to mention that CII has recommended no further cut in Peak rate of customs duty (10 per cent) due to 13 per cent rupee appreciation making imports cheaper. CII has also recommended reduction of excise duties on automobiles used for personal and public transport in addition to other recommendations for automobile industry.

Bhaswati:In order to generate more income tax revenues, what would be the best way to generate tax returns from small and medium businesses? As of now, the salaried person in the organized sector feels burdened by tax implications. Honestly, tax limits need to be raised in the current budget to at least 1.75 lacs for men and women alike.

G Srivastava: Personally, I would agree with you. Let us hope that the exemption limits are raised.

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Shreyas Rane: What if the money collected through taxes is also used to raise the salaries of defense guys/cops, so that they are sustained equally to their contemporaries in any other corporate job so that corruption is reduced?

G Srivastava: The Sixth Pay Commission, if announced, would also raise the salaries of defense personnel.

Vijetha:What will be the software industry condition in this year?

G Srivastava: US slowdown will have an impact both ways. One, companies may outsource less as a result of scaling down of operations. On the brighter side, US companies in order to cut costs would actually outsource more of their operations to countries like India which have a competitive advantage in software.

Noel:With the subprime crisis affecting the US and falling markets worldwide, the dollar is taking a beating and several currencies are appreciating vis a vis the dollar. How much do you envisage would the rupee appreciate against the dollar before the RBI intervenes.

G Srivastava: Appreciation of the rupee also reflects the strength of Indian economy and the weakness of US economy currently due to the credit crunch and the slowdown. We still need to improve our competitive position backed by increases in productivity and capital efficiency.

Krishna Kishore: Is the IT industry, after soaring the heights, coming back to its previous position? Many of the IT people losing their jobs again? What will be the future of IT aspirants in the Indian Market?

G Srivastava: I feel the IT industry needs to move up the value chain — move away from labour cost arbitrage to knowledge arbitrage. This would imply that there is great need for higher order skills in this sector. Moreover, penetration of IT in the domestic economy is not significant and there is a huge potential for consumption of IT and IT-related services in the domestic economy.

Krishna Kishore:In the present economic situation i believe that the prices will soar high and the poor still become poor and the rich getting richer? What is you opinion on the current budget basing on the current economic situation?. Do we still need to have subsidised rates? Why can't we totally eliminate the subsidies?

G Srivastava: It is ideal not to have any subsidies. But the reality is that even developed economies have subsidies. Governments provide subsidies to realise the goal of equity. However, for subsidies to be effective they have to be well directed.

Karthik: Will the Government clarify tax on short selling in the budget?

G Srivastava: Hi Karthik: I hope we would get clarity on taxes that relate to capital gains and clarification on treatment between capital gains and business income. We have also suggested measures to distinguish between trading income and investment income as well.

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Dharmesh:Hello sir, My question is related to the recession in USA and its affects on Indian Economy. The finance gurus often says that the recession in US would hardly affect the Indian Economy? What is your opinion on this issue?

G Srivastava: US is technically not in recession. It needs two quarters of negative GDP growth to quality to be under recession. However, the current slowdown would have a marginal impact on Indian economy especially on long term capital flows and trade. But the positive outcome could be that US companies in order to cut costs would outsource more than before and India could get a major chunk of this pie.

Pinal Nandola:Sir, What you expect from this budget so far as GST is concerned which is to be introduced w.e.f. 1st April, 2010?

G Srivastava: We hope that there would be an announcement on GST model and the roadmap for timely implementation of GST in India.

Raghav:Sir, I would also like to know your thoughts on what the FM can do to seek a greater involvement from the industry in education, keeping in mind that education is an area where we as a country need to invest a lot.

G Srivastava: Private sector involvement in education and skills development is a must given the state of skills shortage in the economy. Government could provide tax incentives to private sector and allow FDI in education services to create capacities that would educate and skill the young population of India.

Rahul:What can the industry expect from this year's Budget? Is there any growth prospect for the industry as a whole?

G Srivastava: Tax collections have been very good this year. moderate rates of taxes have increased the buoyancy. CII has recommended that the surcharge on corporate tax be removed and if possible also reduce corporate tax rates to 25 per cent.

Further there is a strong need to build skills to address the shortage of skills. CII has suggested setting up of a skills development bank that would finance skills development. further CII has also recommended setting up of a National, autonomous skills development authority an apex body on skills that would provide an institutional framework to devise and implement national, sectoral and workplace strategies, to develop and improve the skills of the workforce.

On competitiveness, CII has recommended greater encouragement for R&D activities by corporates through tax incentives. Another non-budget initiative would to be reduce interest rates to increase investments and consumption demand. these initiatives would provide better growth prospects for industry.

Ramesh: Do you oppose Sixth Pay Commission's proposed hike in pay of Government employees? What should be the rational hike?

G Srivastava: No we do not oppose the Sixth Pay Commission. There has been significant downsizing in the Government and in order to increase productivity, public servants need to be paid well. Moreover, increased income in the hands of public servants will also increase demand for consumer goods — which are currently on a slowdown mode.

Rakesh Mohan:Do you expect the FM to announce any major policy changes for the small scale industries? Also, which sectors do you think will be given benefits this time?

G Srivastava: MSMEs contribute to about 40% of Income and are larger employers of semi-skilled and unskilled workforce. We expect announcements that would further boost to MSME competitiveness and growth. CII has recommended a Central R&D fund funded by the Government and voluntary contributions by the Private Sector with tax incentives for contribution. This fund should be made available to MSMEs for any R&D activity undertaken by them. CII has also proposed 100% depreciation benefits for any spending on IT hardware and software by MSMEs as this would improve their competitiveness.

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