Union Finance Minister Arun Jaitley has promised a federal approach to economic rejuvenation of the country. In his speech at the pre-budget meeting with States and Union Territories’ finance ministers, chief ministers, deputy chief ministers, Minister of State for Finance Nirmala Sitharaman, senior officials from Centre and State Governments, he said, “It is the policy of this Government that ‘Team India’ shall not be limited to the government sitting in Delhi but will also include States as equal partners in the growth of this great nation.”
Jaitley assured that the discussions with the dignitaries above will shape to a great extent his Budget proposals to be presented before the Parliament. “(The) Union and the States must complement each other in managing the economy and the fiscal policy. This is the essence of cooperative federalism,” the finance minister notedd.
Encouraged by the fact that, “while the growth of the country has crawled at sub-5% in the recent years there have been States registering much robust growth”, Jaitley called for concerted efforts to revive the economy. He urged all responsible for governance “to reap the benefits of the demographic dividend”. “We owe it to our youth and underprivileged that we partner in this process of growth and its equitable redistribution,” he said.
Recently released data by the Central Statistical Organisation shows that mining and quarrying sectors have gained a negative growth trend, Jaitley noted. Reiterating that the scenario the new government has inherited is grim, the minister said, “The manufacturing sector has had an abysmal performance last year. The investment cycle has been disturbed. The negative sentiment has affected trade, hotels and transportation sectors which are posed for a slower growth compared to last year. Inflation continues to be rising with April figure at 8.9%.”
“The slow-down in economic growth coupled with high inflationary pressure poses a challenge to the macroeconomic environment. Tax collections are only at 10.0% of the GDP compared to the initial budget estimates of 10.9%. India can ill afford this trend,” the finance minister said, but added optimistically, “I believe that deliberation held today will be the first of the series of such deliberations and we will together steer the economy in the mutually agreed direction.”
“My Government is committed to evolving a model of National Development which is driven by the States and we intend to extend necessary flexibility to States in achieving this. I urge the States to be fiscally responsible with this greater devolution of power. Intergenerational equity must be kept in view while deciding today’s spending. I appreciate the fact that most of States have been conforming to the FRBM targets. We must carry this forward,” Jaitley said.
The Union minister reminded the State representatives that Goods and Services Taxes (GST) was “one pending issue on which now consensus needs to be built and implementation done at an early date. Implementation of GST has the potential to significantly improve the growth story. Many of you would recall that a decision to implement GST was taken in 2007-08 and an empowered committee was formed for building consensus on this issue. I have been informed that on many issues convergence of views has happened and there are some vexatious issues which only need resolution. I wish and hope that these will be sorted out sooner than later.”
Jaitley told the chief ministers and their deputies that the States will enjoy a greater degree of autonomy in scheme implementation. It has been decided that funds for centrally sponsored schemes will be routed through the State Governments, he said. “Flexifunds” as part of this decision also exist to tailor the scheme implementation to meet the local requirements, the minister reminded, urging all State heads to use the forum for making suggestions for improving implementation of various welfare programmes of the government.
“Long inflationary trends have adversely impacted the food and nutritional security of the common man. We are committed to breaking this vicious cycle of high inflation and high interest rates. While, we look forward to your support in tackling temporary fluctuation in prices, we also would like to evolve a mechanism which addresses the structural issues that create supply bottlenecks. We need to look at the Essential Commodities act and put in place strict measures and special courts to stop hoarding and black marketing. The need for a Single Agriculture Market and real time information dissemination on prices to farmers and consumers are areas which need to be addressed. You will appreciate that these goals cannot be achieved without active cooperation of States. I urge you to address the areas of agriculture extension, public investment in agriculture including irrigation and agriculture marketing which fall under your purview. We will be there to support you,” the finance minister said.
Doubting the efficacy of the National Food Security Act the last government left the country with, Jaitley said the need of the hour was to implement the law in a cost-effective and efficient manner for ensuring real “Food Security”. “PDS as a vehicle to shield the poor from price rise has to be significantly improved. Some of the States have done extremely well in improving the delivery under PDS,” he said, encouraging the rest to “learn from them”. “We are committed to reviewing the successful PDS models and incorporate the best practices to revise the existing PDS, for benefitting the common man.”
A rallying point for activists in the past few years has been the imagery of foodgrains rotting for want of adequate and proper storage space. Conscious of the inefficiency of the current warehousing facilities, Jaitley said, “Restructuring FCI for greater efficiency in delivering food grains is also on the agenda. Decentralised procurement of food grains provides an alternative and more effective model for food grain administration… only some States have adopted decentralised procurement but many have not,” the minister said, visibly displeased with the performance of some States.
Talking on behalf of the Union Government, Jaitley said, “We believe that growth can be revived through increased investment in the areas of Infrastructure. We have to think big and build an infrastructure which can cater to a growing population in coming years. Growth of infrastructure will also pull out sectors such as cement, steel and power etc from the current downturn and will lead to massive job creation. You will appreciate that this cannot be achieved alone by the Central Government without partnering with the States. Similar approach is also required to modernize our Industries. We should no longer remain a market for global industry rather we should become a global manufacturing hub.”
Reminding the State representatives of the potential of the people, Jaitley said, “We have now reached a stage where demographic dividend will be bereft of any meaning unless we improve access and quality of education and health services for teeming masses. Programmes like SSA, NRHM and PMGSY have improved access to these services, quality has however been questioned by many. We believe that not only access but there has to be a quantum jump in the quality of education and health services at affordable costs. I seek your support in achieving the objective of, quality education for all and assurance of health care for all.”
The finance minister concluded his speech by inviting suggestions for Budget 2014-15.
Various suggestions had already been received from the representatives of different industry and trade groups on 6 June. Major suggestions included the urge that Government followed the path of fiscal consolidation, curbed inflation especially food inflation, pushed GST, deferred GARR for at least next three years, made no retrospective amendments in tax laws henceforth as it hurt business sentiments in general and discouragesd foreign investment in particular. Suggestions were made to follow 3 Cs: Credibility of policy, continuity of decisions and clarity of legislation among others. Other suggestions included transparency and clarity in tax laws especially those relating to transfer pricing, encouraging foreign subsidiaries of Indian companies to bring back the money by exempting dividend from MAT; no MAT on exempted income such as long term capital gains etc. among others.
Other suggestions include productive use of subsidies, exemption /rebate to new industry, banks recapitalization through capital market, abolition of service tax on tourism activities to boost tourism, reduction in MAT, single assessment instead of multiple assessments for same period by tax authorities, revision of reservation list of items reserved exclusively for manufacture in MSME Sector, discourage import of items produced by low cost machineries through effective taxation policy, monitoring of items relating to MSME Sector, imported from neighbouring countries under SAFTA and stringent action to discourage the same.
Industrialists had also pressed the government to remove 2% duty on bicycles, which is eco-friendly, fix floor prices in case of imported bicycles, impose import duty on bicycle and its parts not less than 40% to arrest cheap imports and introduction of a ‘Technological Upgradation (sic) Fund Scheme’ to help bicycle industry in the country.
They had also asked for promotion of women enterprises in the country, which is at present about 4% only and, therefore, women enterprises, particularly in the MSME sector, be given exemption from taxes atleast for two years. Another suggestion had been made in view of the MGNREGA. Some industry heads said it was affecting the industries and, therefore, be reserved for elderly people and women as they can’t migrate whereas youth should be given skill development training in the industries.
Other suggestions included allowing of investment-linked incentives without any threshold limit to benefit MSME, as the present threshold limit of Rs 100 crore applied only to large industries; introduction of technological upgrade allowance; scrapping of TDS on payments made under Section 195 of the Income Tax Act, 1961; exemption of exports from service tax; service tax exemption for services sought abroad under Reverse Charge Mechanism (RCM) such as brand promotion & advertising services etc.; service tax exemption for EPCs/FIEO; excise duty exemption slab for SSI units be increased from Rs 1.50 crore to Rs 3.00 crore; exports be brought back under priority sector lending; extension of Interest Subvention Scheme to all sectors and merchant exporters ; and creation of Export Development Fund with a corpus of minimum 1% of the preceding year’s exports among others.
It is to be seen how much of cooperation the Union Government gets from State Governments nd Opposition in Parliament if it accepts all these demands of the industry.