ASSOCHAM Submits 12 Key Recommendations to Hon’ble PM Shri Narendra Modi to Maximise the Indian Economy

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Updated: September 22, 2015 11:01:18 AM

Economic uncertainty has risen against the backdrop of the slowdown in the Global Economy.Near-term riskshave escalateddue to China growth transition, slump in commodities, capital flow reversals, disruptive asset price shifts, and currency exposure risks related to volatility.

Economic uncertainty has risen against the backdrop of the slowdown in the Global Economy.Near-term riskshave escalateddue to China growth transition, slump in commodities, capital flow reversals, disruptive asset price shifts, and currency exposure risks related to volatility.

Whileimprovement in domestic macro factorshas putIndia on a relatively stronger footing, India needs to bulletproof itself from adverse effects of recent global volatility. In parallel, India also needs toseize the opportunitiesthat have emerged, and are likely to emerge, due to thechanging world economic order.

The following are12 Key Actionable Pointssubmitted by President ASSOCHAM Shri Rana Kapoor to Hon;ble Prime Minister Shri Narendra Modi at the high-level industry interaction convened by the Ministry of Finance onRecent Global Events ndash; Opportunities for Indiatoday:

I. Short Term Actionables (Within next 3 MONTHS)

1. Room for monetary easing to the tune of 75-125 bps over the next 7 months:Between Jan-Jul 2015, WPI and CPI inflation fell by 793 bps and 298 bps respectively over Jan-Jul 2014. However, the magnitude of monetary easing so far has moved by just 75 bps. With WPI showing sharp deflation, the real rates for a producer has seen a 7-8% jump over the last year.

-Since industrial sector accounts for 45% of outstanding bank credit while it has a lower share of 28% in GDP, there is an urgent need for investment revival through a strong dose of monetary easing

2. Rupee depreciation to preserve domestic price competitiveness in global trade:As of Jul-15, the rupee was ~7% overvalued on real effective exchange rate basis. Post China devaluation of yuan in Aug-15, most currencies have depreciated by 2-9%.

-In a subdued world trade environment, India should prevent any real appreciation in rupee

3. Incentivize import of equity capital in banking — FII-FDI Fungibility:The domestic banking system is currently allowed to export equity to international stock exchanges through the ADR/GDR route at much higher costs. This provides costly capital and has no beneficial impact on domestic capital markets.

-FDI-FII fungibility in banking sector through a composite cap will help in import of lower, effective cost equity capital, make banks efficiently capitalized, and boost consumer sentiment tremendously vide increasing lending capacity.

4. Investment revival by prioritizing project clearances:Lower the threshold size of projects to be considered by PMG from Rs 1000 cr to Rs 500 cr.

Fast track clearances for large infra projects esp. for Government owned/EPC for private players to support construction activity and core sectors like steel and cement

5. Protect domestic industry from dumping; through adjustment in duties:100+ cases of anti-dumping investigations against China are under review by Commerce Ministry. While steel is a prominent case, others include chemicals, aluminium alloy wheels, tyres, silk, plastic, rubber, polyester, vitamins.

-In order to insulate the modest growth recovery, government could protect vulnerable industries through adequate adjustment in duties permissible under the WTO

II. Medium to Long Term Actionables(3-12 MONTHS)

6. Explore Land Pooling model for PPP SEZ projects:Government can encourage states to emulate the land pooling model as adopted by Andhra Pradesh and initially pioneered by Gujarat.

-The process is voluntary and less cumbersome and can be relatively cheaper for states

7. Growth drive via Investment revival

Large cash-rich PSEs should be enabled to participate in buying out projects via transparent auctioning(post due diligence), that are delayed due to financial/technical constraints of Project Sponsors. To unlock liquidity for infra developers whose projects have achieved CoD, the requirement of minimum lock-in-period for the sponsor shareholding in the project could be relaxed on better complete waiver on project completion/stability say within 1 year.

Incentivize takeout financing for infrastructure projectsby allowing reasonable incentive (upfront payment or a premium) to Banks when they give up a good asset after completion of project

Float Smart City Muni Bonds to fund the Smart City Projects

8. Affordable Housing (AH): Requires a thrust for Growth:Given Government aim to provide housing to all citizens by year 2022, following efforts are needed to eliminate the estimated housing deficit of 11 Cr housing units:

Grant infrastructure status to the housing sector especially Affordable Housing (AH).This can open additional funding avenues in addition to direct tax benefits and easy finance availability.

Place AH under PSL classification,not to be bunched up with real estate for overall credit cap bulk limits

Create a Zoning Process:Demarcate land for AH development, designate areas where housing friendly zone rules apply with higher Far/FSI, relax density norms/TDR for effective use of land

9. Road Sector: Removing impediments

Reduce time for 100% exit after CODfor road developers from 2years to 1 year, in order to facilitate unlocking of value of road projects by developers, without imposing any condition or reinvestment

Lay out a clear policy for premium re-schedulement:At present, while NHAI has already decided on deferment of premium for projects which are under stress, the selection of such projects is discretionary and therefore warrants a standardized approach.

Adopt a different mechanism to acquire land for road projects: Set up a separate wing within NHAIto work on land acquisition in consultation with States.NHAI should award projects only when substantial land parcels have been acquired

10. Review India Trade Agreements with other nations:With India expected to become the 3rd largest economy by 2025, it will offer a huge consumption market.

India can strategically extract concessions from commodity exporters(who are currently reeling under pressure from a soft commodity price environment) through Bilateral Trade Agreements

Need to completely remove inverted duty structure from all FTAs

Resolve issues of export discrimination with trading partners(China imposes selective import duty on certain Indian exports like cashew nuts, oilseeds, gelatin, etc. while other countries are exempted)

11. Export Promotion:Extend the GIFT City concept to 2 more important economic centres ndash; one in MUMBAI and one in North India, possibly NOIDA

-Encourage states to formExport Promotion Centers

Have dedicatedEconomic Commercial attach in India foreign missions

RationalizeMAT and DDT for SEZs

-BuildCoastal SEZson the lines of China for trade growth

12. Serviced from India:Adopt a two-pronged strategy to leverage India strength in services bya) reducing tax distortions, b) allowing extensive foreign investment and using the country as a Services hub of the world

Remove customs duty for all equipment and spare parts for hospitals topromote Medical Tourism

Considersales tax exemption on MRO operations(maintenance, repair overhaul) for airlines to avoid cascading tax impact. MRO operation in India is ~50% costlier compared to Dubai/Singapore.

-DevelopMumbai as an International Financial Centre

Establish India equivalent of silicon valley in MUMBAI/MMR, PUNE and NASIK belt

ASSOCHAM remains fully committed to supporting the Government in its endeavours to strengthen and revitalize the economy. The chamber commends the Decisive and Pragmatic leadership of Hon;ble Prime Minister Narendra Modi, and believes that the India growth story is strong and resilient in the face of global turmoil.

With the right balance of fiscal and monetary policy measures and sustained economic reforms, the Indian economy has the potential to seize the opportunity and use the global turmoil to its advantage, to reinforce our position as the number 1 investment destination among Emerging Markets, as a global leader of growth, design innovation and productivity. CARPE DIEM!

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