The Central government must seize the limited opportunity that is available due to the realignment of the global supply chain in Asia as a consequence of the US-China trade issues.

As the new government at the Centre prepares to present its Budget next month, the Madras Chamber of Commerce and Industry (MCCI) has come out with three key suggestions aimed at boosting investments and creating jobs in the near-term without tampering with the long-term objectives of the government.

The global supply chain which came to Asia, in particular China, is getting realigned not only from the geopolitical development but also economics. There is definitely a move to shift manufacturing out of China to alternative locations. Countries such as Malaysia, Vietnam, Thailand and Indonesia are also competing for the same opportunity as India, said Srivats Ram, VP, MCCI, who is also the Managing Director of Wheels India.

Compared with other competing countries, India has an edge in terms of skill availability and labour cost. But a major barrier is the income tax rate, which is seen as a deterrent in attracting fresh investments that may flow as a consequence of the trade war. The tax gap is almost 10 per cent now.

Ram felt that since this is a limited opportunity for fresh investments, the government can look at a more favourable tax rate, specifically for large fresh projects that involve, say, a minimum threshold investment of ₹100 crore or more and with an employment generation of at least 100-200 people.

A differential income tax rate on new investments is an affordable and considerable carrot for global companies looking at India as this will reduce the entry barrier and give India a fighting chance to leverage the realignment opportunity. This favourable income tax rate window should be available for domestic players also,” adds Ram.

Anomalies in SEZs

The industry body also wants the government to address an anomaly pertaining to companies operating out SEZs.

Currently, companies manufacturing goods from an SEZ are not able to sell in the DTA (domestic tariff area) without suffering a duty which makes them uncompetitive to sell in the domestic market. A concessional duty will create a level playing field and help ‘Make in India’ more efficient and reduce imports. It is an ironical situation where benefits are made available to FTAs (free trade agreements) but not to the domestic manufacturers, said R Ramkumar, President, MCCI, who is also the Executive Director, Cognizant Technology Solutions.

The office bearers of MCCI also urged the government to look into the possibility of creating a financial institution that supports and funds long gestation industrial projects.

“For a long time now, there has been a chronic problem in India of not having such institutions. We are increasingly finding in the manufacturing sector that companies are getting medium-term loans and having to roll over multiple times. So there is a mismatch of funding. If the Government is able to create an institution towards this and looks at capitalising this, that institution can go to international markets and get long tenure bonds and funding,” said Ram.

Ramkumar also said that IT companies operating out of SEZ and servicing Indian clients could be permitted to bill in rupees instead of dollars. The move will help Indian companies benefit from technology transfer, especially in the digital context.

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