It's time to make India a hotspot for FDI

The recent government policies, reflected at both the Central and state levels, clearly manifest their commitment to put India's growth as an economy-to-reckon-with on the fast-track. I express my heartfelt gratitude to the government for these measures and sincerely hope to see India as an economic superpower in the years to come. First, the reduction of corporate income tax rate to 30% brings us in line with developing Asian economies, where the average tax incidence is 25-30%. Next, true to its intentions to align customs duty with Asean levels, the peak rate has been brought down and we hope this momentum will be sustained. Third, the commitment to VAT implementation is a step further in tax rationalisation. Let us hope goods & services tax become a reality at the earliest. Now, we have to think ahead to '10. We must be the most preferred FDI attractive destination and must outshine our competitors. The fundamental objective of economic reform is to bring rapid and sustained development in the quality of life. Central to this goal is the rapid growth of incomes and productive employment. Such growth requires investment in industry, farm, infrastructure and people. Reforms of broad policy would have to be accompanied by reforms of law, rules and procedures. Within a generation, countries in East Asia — China, Indonesia, Korea, Thailand, Malaysia — have transformed and today have living standards much above ours. Let us take stock of the deterrents the industry is facing today because these also constitute bottlenecks to further FDI attraction: a) Infrastructural bottlenecks in road, port and power. For better infrastructure we need more share of funds and also ten-year advanced planning; b) Absence of emphasis on sectors with more backward and forward linkages. A software and services focus will not multiply employment and re-investment; c) Focus on exports and global business. By focusing on export we will become competitive in the domestic market and overall efficiency will improve. Hence, an export focus is of paramount importance. International trade relaxes the demand side constraints on growth and gives access to foreign markets and resource centres; d) Bureaucratic controls and procedures. Concentration to raise the tax/GDP ratio can be better served if the focus to increase the GDP is instituted. Transactional costs to serve the multiplicity of laws at the central and state level are a major dampener. Measures for further tax rationalisation would include : 1. Remove inverted taxes like CST and present a national market to the buyer; 2. Too many levels of taxes — sales tax, CST, VAT, excise, service tax, octroi — prevent industrialisation. Merging all taxes into a single VAT (GST) should be done at the earliest. 3. High tax rate — the combined effect of all taxes constitutes 40% of the product price. Lowering would bring about better compliance. 4. Partial implementation of FTA — only 82 items on the roster prevents sourcing of components from abroad. Manufacturing in India becomes uncompetitive compared to imports. 5. There should be a 5% gap between customs duties on finished goods and that on raw material components to help manufacturing competitiveness. 6. Exports — infrastructure costs, logistics costs, transactional cost due to long delays in duty refunds of excise & drawback, inverted taxes like CST/ octroi and the differential cost of credit all contribute to our exports being high priced. The new Duty Entitlement Passbook Scheme substitute should look to subsidise exports to that extent. In a nutshell, I am a positive that one step taken by the government in the direction of providing positive support to businesses will be doubly reciprocated by industry. This trend has been seen in all the developed economies of the globe . I once again thank the government for its pivotal role in setting strategic direction for economic growth and look forward to India becoming a super power in times to come.

It's time to make India a hotspot for FDI

The recent government policies, reflected at both the Central and state levels, clearly manifest their commitment to put India's growth as an economy-to-reckon-with on the fast-track.

More from our Partners

Popular Categories

Hot on Web

In Case you missed it

Top Searched Companies

Latest News

Download ET APP

Follow us on

become a member