Step up investment rate for growth: Assocham chief

By Our Special Correspondent

NEW DELHI, FEB. 17. The new President of the Associated Chambers of Commerce and Industry of India (Assocham), Mr. Raghu Mody, has suggested a multi-pronged strategy to step up the rate of investment so that economic growth touches nine per cent annually. Addressing his maiden news conference after taking over as the Assocham chief, Mr. Mody underscored the need for increased capital investment due to lower allocation of budgetary resources on the capital account by the Government.

Mr. Mody said the focus should be on the creation of world-class infrastructure, revival of capital market, development of tourism, establishing linkages with its counterparts abroad and develop consensus among the political parties and labour unions on the much needed disinvestment. Attention should also be paid on development of social infrastructure and the knowledge economy, particularly, bio-technology and other sunrise industries.

The Assocham chief said the current domestic savings rate of 22 to 23 per cent was inadequate. Savings should be increased through fiscal and non-fiscal measures and the financial infrastructure should be strengthened and deepened. Reforms were urgently required in capital markets to protect the interest of investors and ensure that the primary market remains buoyant for generating investible funds. At present, dividends distributed by the operating companies to their holding company suffer from double taxation and, therefore, Mr. Mody recommended that a section similar to the erstwhile Sec. 80M of the Income-tax Act, should be incorporated to eliminate double taxation of dividend.

He also emphasised the need for encouraging foreign direct investment (FDI) by liberalising policies to achieve the targeted inflow of $5 to 10 billion per annum by removing the bottlenecks. At present, 80 per cent of the proposals have to be routed through the Foreign Investment Promotion Board (FIPB) which inordinately delays the investment process.

Mr. Mody also recommended treating of dividend distribution tax at par with withholding tax by amending the IT Act to eliminate double taxation. The surcharge, which was a temporary levy, should also be abolished.

In order to ensure economic efficiency and horizontal equity in the tax system, he recommended that all commercial services for which users had to pay consideration to the provider, must be brought under the service tax without any exception. This would avoid discrimination, litigation and diversion of resources for non-economic reasons. The only exemption should be in respect of social services provided free of cost such as hospitals and educational services meant for weaker sections of the society.

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