Indian Groups Deliver Budget Wish-Lists

by Mary Swire, Tax-News.com, Hong Kong

05 June 2009

A new government is taking up office in India and the annual budget is now scheduled for July 3; various trade and industry bodies have drawn up their wish-lists. This year, however, the usual routine brings louder clamours as a result of the economic crisis. Finance Minister, Pranab Mukherjee, said in an NDTV interview that the problems of crisis-hit sectors like textiles, leather and gems and jewellery will be addressed in the budget. The job of a finance minister, he added, is to strike a balance between the competing demands of different sections of society.

On the stock market institutional buying of infrastructure shares led gains - amid expectations of a focus on infrastructure spending in the budget. Referring to development of the infrastructure sector, the Finance Minister said that massive investment in infrastructure is needed to spur growth but it is necessary to review resources and delivery system to the core sector. The Confederation of Indian Industry (CII) Pre-Budget Memorandum recommended that Budget 2009-10 should be an 'Investment Budget to enable India to deal with the global economic crisis and aim at leading the economy to a 8% plus growth in the coming year'. It pointed out that India should be self reliant and not depend on impetus from outside. It emphasized that India needs to undertake large 'Innovative India' investments in physical and social infrastructure that would accelerate internal growth momentum, so that Gross Capital Formation in Infrastructure reaches 11% of GDP by 2011-12.

Recognizing fiscal constraints, CII stated that it has not called for lowering of key excise and direct tax rates. This did not prevent the CII from calling for the Investment Allowance to be re-introduced to encourage front-loading of investments, and surcharges, cesses, Fringe Benefits Tax and Minimum Alternate Tax to be abolished.

India's new Commerce and Industry Minister, Anand Sharma has said that various policy and sector specific packages to make exports attractive and competitive would be placed before the Finance Ministry for incorporation in the general budget. The Jewellery Export Council (GJEPC) urged the Finance Ministry to make profits from exports of the industry tax-free for the last two years. Other exporter wish-lists included the elimination of the fringe benefit tax, exemption from income tax, reduction of interest rates and speedier insurance and service tax refunds. Nasscom, representing the IT services industry, has reiterated and elaborated on its wishlist.

Even as India Inc lobbied for fiscal sops, representatives from India’s farm sector, which accounts for 16% of Gross Domestic Product, demanded pro-reform policy to boost agricultural production. They wanted to remove restrictions on foreign direct investment for the farm sector as well as a liberalization of commodities trading. Market freedom both in terms of imports and exports are essential for farmers to get better prices and commodity trading will assist investment in agriculture. Substantial investment has to be made in areas like water management, research and development and watershed development.

The government is required to pass the budget and get it approved by Parliament by July 31 as the interim budget funds agreed in February expire on that date. In order to meet the tight deadlines, the government will seek approval from opposition leaders to streamline the process by bypassing various standing committees. However, in another break from tradition, it proposes to consult the State Finance Ministers on their preferences. Finance Minister Mukherjee further said in an NDTV interview that there is a need to have a fresh look at the Fiscal Responsibility and Budget Management Act, which had prescribed the targets for revenue and fiscal deficits. But where will he find the time?

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