Volume 20 No. 2 February 2011 Contents 13 COVER STORY India Inclusive@Davos 2011 Following its highly - successful ‘India Everywhere’ campaign at Davos 2006, and inspired by the turn of events in the last two odd years, CII co-coordinated a special effort called ‘India Inclusive’ @ Davos 2011 to make India’s presence at the WEF mega-event truly striking. 22 FOCUS ‘New Partnerships for Economic Resurgence’ Ten Ministers from nine countries and overseas delegates from over a dozen countries brainstormed on ‘New Partnerships for Economic Resurgence: The Global Imperative’ at the 17th Partnership Summit in Mumbai. 07 ECONOMY Key Policy Issues for the Union Budget 2011-12 The emphasis for this Budget should be to accelerate the investment momentum and speed up employment generation. At the same time, it should also ensure that fiscal deficit is trimmed down, says CII. 27 EVENT CII Partners Vibrant Gujarat 2011 CII was the National Partner to the Vibrant Gujarat global summit, working closely with the Gujarat Government to attract investment nationally and internationally. PLUS All our regular features We welcome your feedback and suggestions. Do write to us at [email protected] Edited, printed and published by Chandrajit Banerjee, Director General, CII, on behalf of Confederation of Indian Industry from The Mantosh Sondhi Centre, 23, Institutional Area, Lodi Road, New Delhi-110003 Tel: 91-11-24629994-7 Fax: 91-11-24626149 Email: [email protected] Website: www.cii.in Printed at Lustra Print Process. B- 249 Naraina Industrial Area, Phase 1, New Delhi - 110 028 Registration No. 34541/79 JOURNAL OF THE COnfederatiON OF INDIAN INDUSTRY 2 | February 2011 Communiqué Congratulations Padma Awardees Padma Vibhushan Azim Premji, Chairman, Wipro Ltd Padma Vibhushan Padma Shri Padma Bhushan Padma Bhushan Padma Bhushan Padma Bhushan Padma Bhushan Padma Bhushan Rajashree Birla, Ajai Chowdhry, Y C Deveshwar, Kris Gopalakrishnan, Chanda Kochhar, Director on the Board, Chairman, Past President, CII, and Chairman, CII (SR) and Chairperson, CII National Aditya Birla Group of HCL Infosystems Ltd Chairman, ITC Ltd CEO & MD, Committee on Banking, Companies Infosys Technologies Ltd and MD & CEO, ICICI Bank Padma Bhushan Padma Bhushan Padma Bhushan Padma Bhushan Rajendra Singh Pawar, GVK Reddy, Dr K Anji Reddy, Analjit Singh, Chairman, Chairman Chairman, Chairman, NIIT Ltd GVK Industries Ltd Dr Reddy’s CII National Committee Laboratories Ltd on Health Insurance, and CMD, Max India Ltd Padma Shri K Raghavendra Rao, CMD, Orchid Chemicals & Pharmaceuticals Ltd Communiqué February 2011 | 5 policy economy Key Policy Issues for the Union Budget 2011-12 The emphasis for this Budget should be to accelerate the investment momentum and speed up employment generation. At the same time, it should also ensure that fiscal deficit is trimmed down WHILE THE INDIAN which still has several Trend in Fiscal Deficits of the Central Government e c o n o m y h a s structural rigidities. (% of GDP) registered a significant Reduce Fiscal Deficit improvement from the to 4.8% of GDP worst of the economic slowdown, it is facing For the current fiscal year, new challenges in the the Central government’s form of rising interest fiscal deficit stands at rates and high inputs Rs 381,408 crore, prices. In addition, global constituting 5.5% of economic recovery Source: Various Union Budget documents GDP, which is way above remains slow, requiring 2.7% in 2007-08. If we us to depend almost add state governments’ entirely on domestic demand for maintaining our strong deficit and off-budget liabilities, the consolidated fiscal growth rate. deficit reaches around 8%! Such a high deficit is unsustainable, with various adverse implications on the The emphasis for Budget 2011-12, hence, should be to health of the economy. Among other things, it would maintain and even accelerate the investment momentum push up interest rates, crowd out private investment, and speed up employment generation. At the same time, increase interest burden and constrain the RBI keep it should also ensure that the fiscal deficit, which has monetary policy on the tighter side. gone up significantly in recent years, is trimmed down to the desired level. In addition, the Finance Minister But the pertinent question is: to what extent is it possible should use this opportunity to announce policy measures to reduce the fiscal deficit without risk to the economic that will strengthen the fundamentals of the economy, recovery or loss of social welfare to the vulnerable Communiqué February 2011 | 7 economy sections of society? CII believes that the Central fiscal CII’s Pro-investment deficit for 2011-12 could easily be brought down to Fiscal Proposals 4.8% without any adverse implication on growth or social welfare. CII believes that Union Budget 2011-12 would have to explore many options to keep the growth of the Raise Revenues economy robust next year and beyond. Emerging Tax Revenues challenges such as rising input costs and interest Widen the Net rates amid still subdued global demand have to be Rather than increasing the tax rates, rigorous efforts dealt with. There is a strong need to accelerate the need to be made to bring a larger number of people investment momentum in the agriculture, infrastructure and industrial sectors. Recent data shows that the and corporate entities into the tax net. This can be rate of investment has declined from 38.1 per cent in done by strengthening the tax information system. The 2007-08 to 36.5 per cent in 2009-10. government could consider expanding the base of the service tax to include all services like railway fares and CII feels the policy instruments available to the freights, with only a small negative list. government in the form of direct taxes can go a long way in overcoming these challenges. In Agriculture, To attract larger participation of informal sector into CII has recommended encouraging private sector the tax fold, tax payment could be linked with some participation through various tax measures, including incentives like provision of social security systems, 150% tax exemption on expense incurred on new unemployment benefits etc. Second would be to technology and inputs; best crop raising practices; make the evasion of tax payments more difficult and mobile vans exclusively devoted for conducting expensive. It is not only the payment of direct tax that awareness programmes; soil testing; residue analysis; is being evaded. Indirect taxes like VAT, excise duty diagnostics and so on. etc are also evaded by the unorganized sector. Strict To boost investments in Infrastructure, CII seeks to do checking to clamp down on those not paying taxes away with the levy of MAT on infrastructure companies. would be necessary. It also favours widening the definition of infrastructure Simplify Procedures u/s 80-IA to include rural based initiatives like water Higher tax compliance and collection requires simplifying harvesting, IT products, solar panels etc. Further, the tax procedures which at present are complex and tax holiday u/s 80IA (4) is sought to be extended to the third party developers of infrastructure projects. encourage malpractices. Currently, the benefit is restricted to the developer Facilitate Smooth Transition to GST or the company that operates and maintains an Implementation of GST is set to breach its scheduled infrastructure facility. deadline of 1 April 2011. Concerted efforts must be Towards facilitating funds for infrastructure, CII has made to ensure that the delay doesn’t go beyond pitched for reintroduction of Section 10 (23G) of the the calendar 2011. At the same time, GST should be Income Tax Act, which provided tax exemption of implemented properly after a thorough consultation interest and long term Capital Gains in the hands of with all stakeholders. GST is expected to provide a infrastructure capital companies. competitive tax system that will enable improvement in Changes in some of the provisions of direct tax are productivity and larger investments. also suggested to induce investment in the Industrial Non Tax Revenues Sector. CII has suggested increasing the deprecation Clear Funds held-up in Disputes rates on plant and machinery from 15% to 25% and extending R&D incentives available u/s 35 (2AB) (that CII specifically argues for clearing the funds stuck in allows 150% weighted deduction on expenses incurred various disputes and litigation for a long time. Estimates on in-house scientific research to select sectors) to all suggest that arrears amount to more than Rs. 2 lakh sectors. Since huge expense is incurred for setting up R crores, and quite a significant portion of that is stuck in & D development facilities, the benefit of tax deduction the courts on account of disputes. An attempt should should be extended to expenditure on buildings used be made to clear at least Rs 50,000 crore during the exclusively for R&D. Suggestion is also made to provide next fiscal. This can be done by encouraging out of 150% weighted deduction for contributions made by court settlements and negotiations, with government corporates to the R&D Fund for SMEs. as a facilitator. Special Courts could be established 8 | February 2011 Communiqué economy t o e x p e d i t e t r i a l Strengthen the proceedings, especially India’s Ranking among 183 Countries Fundamentals ones involving locked-up In order to sustain strong capital. growth and employment Enhance Disinvestment generation, CII is in The Budget for the favour of some critical current fiscal proposed changes in policy that raising Rs 40,000 crore could be spearheaded by way of disinvestments. by the Finance Minister. The government should Flexibility in Labour again aim to raise at Laws least Rs 50,000 crore Source: Doing Business, 2011 - India, published by the World Bank and IFC.