Measures to Acclerate Industrial Growth

Expedite reforms such as

• Direct Taxes Code (DTC)

• Goods and Services Tax (GST)

• National Manufacturing Policy

• Mining and Minerals (Development & Regulation) Act

• Land Acquisition Bill

• Labour Laws Amendment Bill, 2011

• Companies Bill

• Clear and strong mechanism for enforcing contracts

• Simplify Factory Rules and Regulations in the states

• Simplify exit mechanism along with proper safety net for workers

• Promote Green Technologies / Green Manufacturing

• Promote provision for local value addition in government purchase

• Streamline clearances and approval process

• Encourage IP creation and ownership

• Support mechanism to acquire raw material in other countries

• Shift focus to self regulation and third party certification

• Reduce multiplicity of inspection, filling returns, applications

• Unify multiple jurisdiction

• Develop world class infrastructure rapidly

• Focus on electronic mode for transactions for transparency, speed and accuracy

• Revamp old acts such as the Industrial Development & Regulation Act, Factory Act etc.

• Promote export of value added goods rather than raw material

• Focus on markets like Africa for boosting exports

• Priority for select identified focus sectors (labour intensive and strategic)

Boost Investment

• Moderate interest rates

• Rapid clearance of large projects

• Boost confidence through dialogue of industry, both Indian and foreign, with policy-makers

• Greater financial inclusion of rural India for realizing greater savings and investments

• Expand FDI in sectors such as retail, insurance, defence, etc

Financial Sector Reforms

Financial Inclusion

• Strengthen credit infrastructure

• Harness technology to reduce costs and extend reach

• Expedite process of establishing property rights and contract enforcement .

• Set up institutions (with participation from FIs) to promote financial inclusion

Better Access to Finance for the Corporate Sector

• Expand the pool of liquidity for the corporate sector

• Encourage development of the corporate debt market

• Liberalise financing guidelines

• Facilitate increased access to international debt markets

• Promote development of new products

Insurance

• Passage of Insurance Laws (Amendments) Bill, 2008

• Increase FDI from 26% to 49%

• Permit foreign re-insurers to open branches

• Provide for permanent registration of the insurers

• Provide minimum paid up capital requirement of Rs 50 crore for health insurance business,

Banking

• Enactment of the Banking Regulation (Amendment) Bill, 2005

Companies Bill

• Passage of the new Company Law (Companies Act) with thrust on increased disclosure and shareholders’ rights and less government intervention.

Measures to Augment Infrastructure

Roads

• Strengthen the National Highways Road Authority of India (NHAI)  by enhancing manpower and decentralizing powers at the regional level. In addition, NHAI must focus on managing the highway network.

• Overhaul the dispute resolution mechanism and constitute a dispute reconciliation board Form a Group of Experts to ascertain more realistic and acceptable TPC

• Permit pension funds and insurance agencies to fund infrastructure projects.

Aviation

• Impose a uniform tax on Aviation Turbine Fuel (ATF) and fix it at 15 per cent initially. Government could also place ATF in the General Sales Tax in case the imposition of uniform tax is not possible.

• Price ATF as per the domestic cost of production, or base it on the ‘India basket’ which could include domestic and international prices

• Allow investment by foreign airlines

• Rationalize service tax on premium class tickets

• For MRO services,  rationalise high taxes on spare parts

Ports

• Extend the benefits provided to ports to port-based infrastructure service providers too

• Improve port evacuation facilities

• Priority movement of rail container trains and movement should be as per schedule and might be contractually binding

• Corporatise ports to allow them to raise capital from the market for future investments

• Single window clearance for better coordination between port trusts and operators

Power/Electricity

• Ensure that capacity additions are in line with the Planning Commission targets of 100 GW by 2017.

• Acquire coal mines and resolve issues pertaining to environmental clearances for domestic projects to help the power industry.

• To reduce losses, consider concerted action on distribution reforms, including evaluation franchise models across all states.

• Simplify tariff and move towards full cost recovery, Tariffs of utilities need to be revised from 7% to 19% per annum

• Automation and IT backbone development would reduce losses

• Single window clearance facility for all approvals for power plants, especially alternative energy based plants

• Attract foreign lenders and players to the sector. Allow banks to raise long term funds without attracting the provisions of Statutory Liquidity Ratio (SLR)/Credit Reserve Ratio (CRR) norms. Banks and Financial institutions should also be permitted to raise foreign currency loans (thrust on Export Credit Agencies (EGAs).

• The levy of GST (at zero rating or at a reduced rate) on electricity generated through renewable resources with an exemption from resale of electricity would reduce the price of green energy for consumers with no revenue loss to the exchequer.

• State-level initiatives required to create a conducive environment for tapping alternative energy sources.

Other Recommendations

• 100 Mega Projects: Fast-track implementation of 100 mega projects. Also, set up a project facilitation and monitoring body under the PMO to address issues including clearances, and monitor progress

• Project Execution: Simplify government procedures and policies to reduce transaction costs

• Common Market: Create a common market by eradicating barriers to free movement of goods across states. Implementation of a comprehensive GST is the first step

• Employability: Leverage MNREGA for creating skills in addition to guaranteed employment

• Skill Development: Pass Apprenticeship Bill; Extend PPPs from upgradation of ITI s to areas such as creation of National Qualification Framework

• Governance: Promote IT and e-governance for efficiency and transparency

• Passage of National Identification Authority of India Bill.

The Agenda Ahead

A number of important bills held up in Parliament require speedy clearance. These include

GST Bill, 2011

GST would help address shortcomings in the present indirect tax system like tax cascading, complexity and poor technological infrastructure, along with high cost of compliance.

Studies indicate that the implementation of a comprehensive GST could increase India’s GDP growth by 0.9% to 1.7%. This reform has the potential to create 100 million jobs over a reasonable period of time.

Since GST is destination - based, it implies that export prices do not include any taxes while imports are taxed at the same rates as domestically produced goods. As a result, India’s exports should become more competitive and imports less so.

Labour Laws Amendment Bill, 2011

India has one of the most rigid labour law regimes in the world. Moreover, India’s labour laws were last fully updated in the Industrial Disputes Act of 1948. At present, 47 central laws and 157 state regulations directly affect labour markets. These are often inconsistent and at times-overlapping.

The current labour laws are negativity impacting economic performance. Hundreds of companies do not hire eligible workers, for fear that they will not be able to lay them off if required. Many foreign companies do not feel comfortable doing business in the current legal scenario of India. To compete in global markets, companies require operational flexibility, which includes the power to right-size their work force.

Labour laws should be revised to protect workers, not jobs. Improvement in labour regulations will accelerate growth and employment in key sectors.

Banking Laws Amendment Bill, 2011

Despite commendable improvement in the performance of the banking sector in the post-reform era, some areas of concern remain, such as tight liquidity, high non-performing assets, lack of autonomy in HRM policies, especially for public sector banks, lack of accountability, loss-making branches/merger and acquisition, privatization of public sector banks, etc.

The government needs to introduce the third set of banking sector reforms. The Banking Laws Amendment Bill, 2011 is just a small step in this regard.

Notional Identification Authority of India Bill

The National Identification Authority is currently anchored under the Planning Commission for a period of five years. Identifying the NIA as a statutory authority as well as formally specifying its functions will ensure better allocation of scarce resources. The allotment of a unique identification number would provide a reliable method of identification, supplementing the government’s effort towards inclusiveness. However, the safety of data must be ensured.

The Direct Taxes Code Bill, 2010

Given that economic conditions have undergone considerable change in the last 50 years, there is a need for direct tax reforms. The DTC 2010 was introduced to simplify and consolidate direct tax laws.

Simplification of trust taxation provisions would provide a relief for domestic funds. The DTC has brought back MAT to Book Profits which is a positive step. Moreover, DTC is expected to boost investment flow into capital markets, as the government proposes to retain a zero long-term capital gain tax, less than that proposed in the first DTC draft.

The new Code is in favour of the common man and can even boost retail participation in the stock market. In the long-term, it will give a big push to the inclusive growth agenda...

The Companies (Amendment) Bill, 2009

The new Companies Bill, besides other things, promises greater shareholder democracy and stricter corporate governance norms.

Mining and Minerals (Development and Regulation) Act

This Act to amend the Mines and Mineral (Development and Regulation) Act 1957, aims at giving the states the power to grant prospecting license or a mining lease through the process of competitive bidding (by steel, power and iron companies).

Reforms not yet introduced in Parliament :

1    The Land Acquisition (Amendment) Bill, 2011

2    Deregulating Fuel Prices and Subsidies

3    Free Power to Farmers

4    Opening up of Retail Sector

5    Illegal Money