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Must initiate reforms to energize growth, says FICCI head
February, 28th 2012

Budget-making is always a challenge for the finance minister. But when the critical economic parameters that determine growth, investment and consumer spending are at risk, he has to walk the tightrope to garner resources for public spending and at the same time leave enough room for ensuring that private expenditure is not stifled.

True, the global economy is in turbulence. The lingering Eurozone sovereign debt crisis continues to nag major economies of the world as they struggle to claw their way out of the recession and high unemployment levels. The crisis has spawned volatility in capital flows and a slowdown in external demand. For policy makers, these are testing times.
The finance minister Pranab Mukerjee has to contend with the decline in consumption and investment growth as the monetary and fiscal policy response in the past has been tuned to moderate domestic inflationary pressures.

Even so, getting back to a healthy growth trajectory is imperative. The recent Economic Outlook Survey by FICCI reveals that bulk of the respondents feel that growth in 2012-13 would be under 7%.  The Prime Minister Economic Advisory Council, however, projects growth in the region of 7.5%-8%. To achieve this order of growth would indeed be a tall order.
There are concerns on the fiscal side too. The fiscal deficit estimate  revealed by the FICCI survey in the next fiscal is 5.1%, indicating that the process of fiscal consolidation will be long and arduous and it may be difficult to plough it back to the levels witnessed prior to the crisis. 

The Budget for 2012-13, must, therefore, initiate new reforms with a view to energizing growth. It is necessary to cast the direct tax net wider and ease the fiscal pressure by privatizing coal mines, announce one-time amnesty scheme to encourage Indians to bring back their overseas wealth and build inventory of government assets other than PSUs, that can be monetized.
To promote investments, the North Block must use the instrument of direct taxes effectively. The ensuing Budget needs to ensure that the cascading impact of Dividend Distribution Tax [DDT] removed, depreciation rate restored to 25% and tax exemption of income from investment in infrastructure and other  projects  restored under section 10(23G).

The MAT (Minimum Alternate Tax) rate should therefore be rationalized from a high 20% to a more reasonable level - not exceeding 50%  of corporate tax rate and units in Special Economic Zones (SEZs) and  SEZ developers as well as Investment companies should be outside the MAT ambit. Also, the Budget proposals should also encourage research and development (R&D).
On the indirect tax front, Budget 2012-13 should introduce alternative measures in lieu of refund mechanism to ensure that refund is granted in time bound manner; show cause notices should be adjudicated within a defined or prescribed timeframe; CST rate should be reduced to 1%; Central Sales Tax (CST) provisions to be aligned with SEZ rules - granting benefits to contractors and sub-contractors and advance ruling should be allowed even in case of transactions between domestic entities

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