Finance minister Nirmala Sitharaman on Thursday held virtual pre-Budget consultations with representatives of the financial sector and capital markets, who submitted a raft of proposals, including the need for flexibility while regulating non-banking financial companies (NBFCs).
Sustained credit flow to critical sectors of the economy, structured development of the corporate bond market and need for parity between banks and shadow lenders in certain tax provisions, too, featured in the consultation meeting.
Earlier in the day, the finance minister met industry bodies and experts on infrastructure and climate change, some of whom suggested that the government must remain focussed on sustaining an 8%-plus economic growth rate in the coming years. Government functionaries expect double-digit growth in FY22.
On Friday, the minister will hold consultations with representatives of the services and trade sector in the forenoon; and with a second group of officials from industry bodies and experts on infrastructure and climate change in the afternoon.
Amid greater thrust in recent months by the central bank on the harmonisation of regulations for all lending institutions, the Finance Industry Development Council (FIDC), a body of shadow banks, said regulating NBFCs like banks will damage the “typical NBFC model of lending”, most of the beneficiaries of which are “the unbanked and underbanked segments of society”.
At the same time, there is a need to extend the more attractive provisions relating to taxation and recovery that banks currently enjoy to NBFCs as well. For instance, while high-street banks are exempted from tax deducted at source (TDS) on their interest income, NBFCs don’t get that waiver, analysts said.
CII president TV Narendran said the upcoming Budget must “continue the thrust on growth and reforms, and ensure tax and policy stability”. “This will help firmly entrench the nascent signs of recovery being currently seen in private investment,” he said, adding that enhanced capital expenditure by the government must continue.
To help Indian industry better integrate with the global value chain, it was suggested that the government adopt a road map to shift import duty slabs to a competitive level over a period of 3 years — lowest or zero duty slab for raw materials, 2.5-5% for intermediates and final products in the standard slab with exception given to only few products.
Assocham president Vineet Agarwal called for the introduction of a Vivad Se Vishwas-like scheme, which helped reduce litigations in the area of taxations, in customs, telecom, mining, power and other sectors as well. There are many legacy court cases in these sectors, often arising from interpretation of regulations/policies. Given the imposition of penal rates of interest and penalties, by the time these cases are decided, the due amounts may become 5-6 times of the disputed principal amount, Agarwal said.
Some stakeholders suggested that the government must develop the municipal bond market so that urban local bodies can raise funds for investing in infrastructure that has high multiplier effect.
FIDC director Raman Aggarwal said retail credit to individuals and small businesses extended by NBFCs need to be treated differently from large corporate loans.
In a circular on November 12, the RBI said the date of NPA classification of borrower accounts applicable to all loans, including retail loans, irrespective of the size of exposure of the lending institution, will reflect the asset classification status of an account at the day-end of that calendar date.
The economy is recovering from Covid-induced shocks and is expected to grow in the range of 8.7% to 10.5% in the current fiscal. A massive credit push is thus required for businesses to continue with their operations without hiccups and to undertake expansion, some stakeholders have submitted.
Non-food bank credit growth accelerated to 6.9% in October, against 5.2% a year before. However, credit to industry grew only 4.1% in October, even on a contracted base.