The Hindu : Business : Industry expects further push to reforms process

Online edition of India's National Newspaper
Tuesday, Feb 22, 2005

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Business

Industry expects further push to reforms process

By Our Special Correspondent

NEW DELHI, FEB. 21. India Inc. is pegging its expectations rather high on getting a boost from the 2005-06 Union Budget, the second by the Congress-led United Progressive Alliance Government. And there are valid reasons for this optimism, say the corporate honchos. Given the ground reality of increased focus on the country's economic performance, the Finance Minister, P. Chidambaram, has little option but to provide the necessary incentives to sustain the demand for goods and spur economic growth.

The general consensus among the premier industry associations is that "continuity, consolidation and innovation" will be the mantra that Mr. Chidambram is likely to follow to accelerate the growth momentum to keep pace with the changing global economic scenario. Without doubt, they also realise that the Finance Minister will have to address the sensitivities of the coalition partners who have strong views and reservations on many economic issues.

The apex chambers are sanguine that when the Finance Minister rises to present the Budget on February 28, the measures would give a further push to the reforms process. His proposals, they feel, will have elements to facilitate larger foreign direct investment flows for expediting economic growth and stimulating the investment environment. From manufacturing to infrastructure, exports and SMEs, all the vital sectors will benefit from some incentive or the other to help achieve the targets set for them. All these form a part of the "wish list", which the industry is hopeful, will get addressed as a matter of economic compulsion.

Coming to specifics, the industry is anticipating some sops for steel, cement, petroleum products, automobiles and auto components and cut in duties to boost the generation of demand. The impact of a "fiscal trigger" on these five commodities is being seen as crucial to stimulate investment, by way of the sheer force of the multiplier effect working itself out through the economy resulting in a boost to gross domestic product growth. Sectors such as food processing and pharmaceuticals have similar expectations of being provided a boost for manufacturing.

The chambers also nurse expectations that the average customs duty may be slashed by 5 percentage points, This will be in sync with the existing rates in some of the emerging economies. Another area where a major boost is foreseen is the infrastructure sector along with power. There is hope that the ports and airports will get the fiscal incentives for infrastructure development.

The possibility of further sops to the stock market is also being debated. While the Indian stock market has seen a pre-Budget rally, the Finance Minister would like to ensure that the main drivers of the market, foreign institutional investors, stay in India in the backdrop of frequent hikes in Federal Reserve rate and strengthening of the dollar.

Even as industry and trade see the prospects of more services being brought into the tax net, it feels that the service tax rate would not be changed.

A sizable section of the industry and trade still feels that the existing surcharge of 2.5 per cent and cess of 2 per cent on the income-tax would be retained. They are ruling out the possibility of any new imposition of cess for tsunami relief.

Industry leaders, however, apprehend a new cess in the Budget for meeting expenditure on the National Rural Employment Programme on the lines of the education cess imposed in the last Budget. They feel that the Government will impose the new cess for the Employment Guarantee Programme as a follow-up to the National Rural Employment Guarantee Act.

On labour reforms, there is no excitement, as the industry is not hopeful on this count, but it is wary of job reservation in the private sector.

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