Wednesday, October 15, 2014

Make in India – A Formidable step in Right Direction

Make in India campaign of Prime Minister Narendra Modi has evoked lots of attention all over the world. Prospective investors from China, Japan, USA etc are eagerly watching changes being made in the directions of investment liberalization . There is no doubt that with this PM has taken a major initiative to bring Indian and International Corporate Sector on one platform to aggressively boost industrial production and growth in India. The Hon'ble Prime Minister acknowledged that the business environment in India needs substantial improvement and has also committed to the nation that the government will take all necessary steps to uplift India from 134th position (as per World Bank Group Report) to 50th position internationally in "ease of doing business" on most immediate basis and the government will take all necessary action in this regard. Ease of doing business would not be possible by simply organizing meetings between central and state governments. Some concrete and immediate steps would be required to be taken. The All India Chartered Accountants Society along with National Economic Forum have decided to effectively support the government in the aforesaid initiative and to suggest & bring out to the government attention, a concrete action plan in various areas so that the same can be considered for implementation by the government. A special committee has been set up to undertake detailed research on regular basis and to bring out proposed action plans, policy and suggestions to the Central Government, State Governments and regulatory bodies to achieve the objective of bringing out a major change in the business environment conducive to Indian economy. Some of the important issues which have already been identified and referred to the High Powered Committee of AICAS - NEF for working out detailed suggestions and specific action plan/ amendments needed are:

DIRECT TAX

 The draft direct tax code will require a comprehensive discussion at least for 12 months before a final decision is taken on its implementation. The tremendous confusion created by the government while implementing the Companies Act 2013, is a lesson to be learnt before implementing any new major legislation.

Specifics: The existing Income Tax Act, 1961 may be comprehensively amended to delete complicated provisions and various limitations, introduced in the law with a negative mind set. Provisions relating to MAT, Dividend Distribution tax, certain provisions of section 56, transfer pricing, Dis allowances and unnecessary conditions should be made reasonable.

Corruption: The physical interaction between tax department and the assessee has to be done away with except in very exceptional cases. Unnecessary litigation, appeal, survey, searches and raids may be limited only to money laundering cases. A sense of faith and comfort need to be developed between the tax payers and the government. Computerization in variance with the provisions and spirit of the Act at several places has created great discomfort by errors in tax credit and tax refunds. Provisions relating to advance Ruling' may be expanded and strengthened. The rules of interpretation of tax laws may be changed to real intention of the legislature rather than strict interpretation of the exact language. The spirit behind legislation, with a positive note will generate conducive investment climate.

The tax rates and slabs need rationalization.

INDIRECT TAX

The goods and services tax (GST) as a single indirect tax is of utmost importance to be achieved. A separate GST for Centre and for States will not achieve any purpose and will create major issues.The Central Government need to sacrifice their supremacy and final say in favour of State Governments (2/3rd majority). The Central Government may keep veto power in very exceptional cases. The tax collection machinery of the Central Government may need to be under administrative charge of the state governments, similar to Indian Police Service so that on a national level minimum bench mark standard of tax collection procedure and tax payer fair dealings can be implemented. In the meanwhile Service tax law, Excise and Custom procedures need to be curtailed with minimum tax exemption level to rationalize.

CORPORATE LAWS

The Companies Act, 2013 will require comprehensive amendments. The small, mid- size and big companies as well as private companies, closely held public companies and listed companies are to be dealt with separately and rather require exemption from compliance of most of the provisions. The compliance and procedures need to be substantially reduced to eradicate unnecessarily excessive cost and harassment of the corporate. Self-regulation guidelines and least reporting is the key. It is important to give complete liberty to closely held / private limited companies to conduct their business and finances in a free manner, till such time the funds from public are not taken and up to a minimum bench mark of bank borrowing.

Penalties: Penalties and prosecutions to be restricted only to areas impacting public interest adversely. Additional fee is enough for procedural delay/other non-compliance's.

CAPITAL MARKETS

Capital markets need to ensure to eradicate excessive speculation and gambling like transactions. The manipulation of valuation, top line, bottom line and market prices need to be curbed more effectively by bringing in system based checks and balances and independent review and evaluation by regulator appointed professionals.

FINANCIAL MARKET

The financial market has a major role in providing equity capital as well as the debt funding. The interest rates need to be reduced by 30% in short term and by at least 50% from current levels in medium term to ensure growth of manufacturing, real estate, trading and service sector. The non-performing assets will also be substantially reduced. It is important to freely allow Indian entrepreneurs to create new banks, NBFCs and financial institutions in India and outside India, to be monitored with positive guideline regulations. The Foreign Direct Investments, Overseas Direct Investments need to be promoted, at the same time domestic investments need to be given comparatively more liberal treatment to ensure creation of large capacity and capability in India for an efficient and effective business. Road map for full convertibility has to be put in place. INR has to be made a more acceptable currency internationally.

Labour Laws need to be rationalized to bring social security as well as reasonable treatment to employees. A dignified balance between employer and employee rights and responsibility is a must for a robust widespread inclusive growth.

Infra Sector: Power Sector, Special Economic Zones, ports, highways, residential infrastructure, commercial real estate, defense sector all will need special nursing and policy support.

The agriculture sector is the backbone of India growth. There is a need to bring out a new Green Revolution. Sugar industry desperately needs policy support and freedom from input price control. The white revolution providing milk industry need to be more competitive and many more large players are needed. The quality and prices both are negatively impacting because of monopolistic position of few giants. Integrated development of industry and agriculture has to be planned. Water bodies up gradation, River Linkages, Water Treatment cleanliness and availability of free potable water need to be converted into a national movement. The Swatch Bharat Abhiyan (Clean India Movement) will substantially contribute to the growth of businesses and make in India. The cleanliness needs in all walks of life coupled with high morale, ethics and transparency in approach will take India towards sustained growth. The health and education are two most important areas to provide major strength to a strong, capable, intelligent and committed Indian workforce. The Vision of Prime Minister and his BJP Team need efficient and effective execution with participation by all.
What is needed is a positive economic & governance environment. We sincerely look forward for participation by all intell- actuals & practical guidance from experienced Indians to move in the right direction aggressively, efficiently & effectively with a focus on Make in India Growth.

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