Ahead of the pre-Budget consultations scheduled on Wednesday between Finance Minister P Chidambaram and Indian Inc, the Confederation of Indian Industry (CII) said it wanted the government to announce measures to revive investment, to perk the sliding economic growth.
However, it resisted from asking for a general stimulus in the form of a reduction in excise duty and service tax rates from the current 12 per cent each, in view of the Centre's fiscal health. The government had cut excise duty by six to eight percentage points and the service tax rate by two percentage points to 10 per cent during 2008-09, to help business face the impact of the global financial crisis.
Since then, excise duty has been raised by four percentage points and the service tax is back to 12 per cent.
The Centre's fiscal deficit has been revised to 5.3 per cent of gross domestic product against the 5.1 per cent pegged in the Budget for 2012-13. Even the revised figure is difficult to achieve, say economists. However, the finance ministry is confident of meeting it.
In its pre-Budget memorandum, the chamber also urged the minister to retain the Customs duty rate at 10 per cent, as excess capacity in the global economy could lead to a surge in imports and mar the recovery of domestic industry. There has been talks for many years the government would ultimately align the peak Customs duty at the level of five per cent prevalent in the Asean bloc.
As roll out of the Goods and Services Tax (GST) does not seem to be in sight soon, CII asked the government to halve central sales tax (CST) from two per cent to one per cent, to stimulate investment. CST is imposed on inter-state movement of goods and would be abolished once GST comes into force.
CII also wants various tax-related measures to restart the investment cycle. It emphasised the need for allowing an accelerated depreciation rate on plant and machinery from the present 15 per cent to 25 per cent for the next three to five years. The move, it said, would allow project developers to obtain the tax advantage of the depreciation in a shorter period of time, rendering an incentive for fresh investments without affecting revenue collection.
"At a time when new investments have reduced to nearly half of last year, across all sectors, raising the depreciation rate on plant and machinery will incentivise industry to make fresh investments," suggested CII Director General Chandrajit Banerjee. The chamber also asked for abolishing surcharge and cess from corporation tax and exempting infrastructure and special economic zones from the minimum alternate tax.
It expressed concern over declining growth. Banerjee said, "The CII business confidence index for the quarter ending December slipped below 50 points, indicating weak business confidence. The recent reform measures have, no doubt, rekindled confidence but much more needs to be done to provide a fillip to the investment cycle in the present uncertain domestic and global economic environment."
The CII Business Confidence Index dropped below 50 points for the first time in this financial year, to 49.9 points in the third quarter compared to 51.3 in the second and 55 points in the first quarter.
However, the index was slightly higher than the 48.6 points in the third quarter of 2011-12, showed the survey. The index is measured on a scale of 1 to 100 points. A score above 50 indicates positive confidence, while a score above 75 would mean strong positive confidence. Less than 50 indicates weak confidence.