Finance minister Arun Jaitley said on Tuesday that the deceleration in economic growth has bottomed out and macro-economy stability has improved.
Addressing a group of economists who met him for a pre-budget consultation, Jaitley said the government is committed to fiscal discipline and with a sharp decline in international oil prices and due to focused attention from policy makers, the Current Account Deficit (CAD) is also at a comfortable level. Jaitley told economists that present government is committed to regain investors’ confidence.
On their part, the economists suggested that the government should focus on boosting growth, containing inflation, rationalisation of subsidies, containing fiscal deficit and above all, bringing back the investors’ confidence among others. Suggestions were also received for larger public investment in agriculture, infrastructure sector including rural infrastructure, among others.
Jaitley’s budget proposals are expected to contain ways to improve India’s ranking in the ease of doing business. Industry executives have asked for a reduction in the Minimum Alternate Tax (MAT) rate from 18.5% to 10% and exemption for developers and units in Special Economic Zones (SEZs) from MAT. MAT is charged on companies that do not pay the 30% corporate tax on their book profits due to tax breaks.
The economy has registered a higher growth in the first half of the current fiscal at 5.5% as compared to last year’s 4.9% in the first half, and 4.7% for the full financial year 2013-14. The real GDP which grew 5.3% in the July-September period, is expected to grow in the range of 5.4-5.9% in the full year. Industrial output recovered from a 4.2% decline in October and grew 3.8% in November helped by a pick up in manufacturing activity.
At a meeting with businessmen and industry chambers last week, Jaitley had said that reviving manufacturing activities, diversifying its base and preparing it for a robust long run expansion was one of the major challenges he was facing.
Analysts expect the industry to grow 3.6% this fiscal and further expand by 5.5% next year. With retail inflation at 5% in December, industry demand for a rate cut by the RBI is growing louder.
State chief ministers and finance ministers, who met Jaitley last month, have conveyed their financial distress and have asked for tax breaks for industries and state-specific infrastructure projects. Tamil Nadu has asked for interest subvention for small scale sector, an urban housing schemes and funds to set up a R1,400 crore desalination plant. Punjab has asked for tax concessions similar to what is given to the hill states, while Kerala has asked for higher import duty on rubber.