CII chief pitches for making equity more attractive than debt

KR Srivats/Richa Mishra New Delhi | Updated on December 17, 2019 Published on December 17, 2019

Vikram Kirloskar, President of CII

Vikram Kirloskar pushes for doing away with long-term capital gains tax to boost markets

The Finance Minister should take steps in the Budget to make equity more attractive than debt, said Vikram Kirloskar, President of the Confederation of Indian Industry, thus, making a case for doing away with the long-term capital gains tax (LTCG).

Finance Minister Nirmala Sitharaman is expected to present the Union Budget on February 1. “My main suggestion to the Finance Minister is to take steps in the Budget to make equity more attractive than debt,” Kirloskar told BusinessLine. This was his pitch to the Finance Minister at the pre-Budget consultations.

It is up to the Finance Minister to decide on the steps needed to make equity more attractive, he said. The cost of equity capital in India is high due to various taxes such as the capital gains tax and the dividend distribution tax in addition to corporate income tax, Kirloskar said.

He has also urged the Finance Minister to do away with dividend distribution tax at the company’s end and tax the dividends as income at the hands of shareholders and the company receiving such incomes. His demand for a rethink on the LTCG and dividend taxation comes on the heels of the Centre’s September 20 decision of reducing corporate tax, leading to a revenue loss of ₹1.45-lakh crore for the exchequer.

Kirloskar also suggested an expansionary fiscal policy, stating that the government should not be averse to a slippage in fiscal deficit of 0.5-0.75 percentage points to push growth.

He said the share of manufacturing in the country’s GDP was still low at about 17 per cent and there is need to take it up at least to 25 per cent in the next 10-15 years.

Need for policy certainty

“The most important thing that industry today wants is policy certainty. This is the biggest problem in ease of doing business. We don’t want frequent changes to the government policies. For instance, we should be have an automobile policy that would last for at least 15 years,” he said.

There is also need for placing emphasis on improving the country’s ranking on the ‘enforcement of contracts’ front in the World Bank’s ease of doing business index, he added.

Kirloskar felt that the automobiles sector will be a good growth driver for manufacturing in the coming days, given the low automobile penetration and car ownership in the country. He also saw textiles as another sector with a lot of potential.

“I think textiles will be a dominant force and the textiles policy should be re-looked. Textiles has a higher potential for employment from the farmer to the retail level. We make everything in India in the textiles value chain,” he said.

On free trade agreements (FTAs), Kirloskar said that India should do FTAs protecting the country’s interests, especially with those that are potential markets for Indian industry. “We shouldn’t enter into FTAs without protecting our interests. That will make sure the rules of origin are correct and there are no non-tariff barriers ...look at the whole thing”.

When India goes in for FTAs, it has to ensure that the country gets access to services in the other country’s market. “If they are not ready to give us service access, why should we give them market access?” he said.

Published on December 17, 2019
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