The Narendra Modi government will soon announce steps to reduce the cost of production for businesses...
The Narendra Modi government will soon announce steps to reduce the cost of production for businesses that will complement efforts to strengthen the country’s grossly underperforming manufacturing sector and pursue a reasonable and rational tax policy to aid a gradual return to the high economic growth trajectory, finance minister Arun Jaitley said on Sunday.
He indicated the government’s plan to push ahead with reforms to a land acquisition law by relaxing the cumbersome social impact assessment and consent clauses that fret industry, “even if there is resistance to loosening the rules”. He said these changes were needed to fulfil the Prime Minister’s vision of building 100 new “smart” cities across India.
Sources told FE that one of the measures the finance ministry was working on was to further reduce import duty on a host of raw materials that would make production of value added goods more competitive. Implementing the proposed new indirect tax regime, the Goods and Services Tax (GST), will also help in lowering the cost of production by reducing multiple taxation of items.
“Even though we have a manufacturing export base of $300 billion, because of certain steps that we have not taken, our costs are a little higher. Therefore, one of the principal objects of the present government is to take the relevant steps so that India can not only be a manufacturing hub, but also a low-cost manufacturing hub,” Jaitley said at the India Global Forum summit here.
India’s manufacturing sector, which had contracted 0.7% in 2013-14, has posted a 3.5% growth in the first quarter of this fiscal compared to a 1.2% contraction in the same quarter a year ago.
Jaitley said the government had estimated a gradual return to high economic growth rate. “We expect the economy to grow reasonably and modestly this year, a little higher next year and hopefully if that trend continues, India can be on a high growth trajectory,” said Jaitley.
What is also on the cards is rationalisation of tax provisions to reduce disputes. “We have seen the challenges before the economy. So, a reasonable and rational tax policy (is needed). It can’t be ultra-aggressive with the tax payers,” the minister said.
The Modi government intends to amend the law to ease land acquisition procedures for business projects even if it does not get support from Opposition parties. The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Settlement Act of 2013 provides for rigorous social impact assessments and requires consent of 70% of the affected families. The law passed during the previous government’s term seeks to give a fair compensation for land owners but has been criticised by the industry for making it difficult to acquire land for projects.
“Some changes (to the law) may be necessary. We will first try to reach a consensus, and if that is not possible, we will go ahead and take the decision,” he said.
The finance ministry has also finalised a disinvestment policy which the minister said will “unfold” in the next couple of days. The government intends to bring down its equity in public sector banks