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Assocham suggests three-pronged strategy to contain fiscal deficit

— PHOTO: PTI

GARNERING RESOURCES: Sajjan Jindal (right), President, Assocham, with S. Rawat, Secretary General, releases the study on fiscal situation and task ahead in Mumbai on Saturday.

MUMBAI: A three-pronged strategy was suggested by Associated Chambers of Commerce and Industry of India (Assocham) to contain fiscal deficit and generate resources for infrastructure development by diluting government equity in profit making public sector undertakings (PSUs), maintaining status quo in existing low tax regime and further relaxing interest rates to avoid constraints on the growth momentum.

Releasing the study on fiscal situation and task ahead of the new Government at a press conference held here on Saturday, Assocham President Sajjan Jindal said that “continuation of low tax regime ought to be maintained in 2009-10 budget proposals”. India also needs to tap $100 billion soft lending facility, proposed to be created by World Bank under the provisions of the recent G-20 meet in London to garner funds to uplift its infrastructure for investments and employment creation, according to Mr. Jindal.

Emphasising execution of goods and service tax (GST), the Assocham Chief said that a roadmap for it was necessary to usher India into a single GST regime. Mr. Jindal said that low tax regime on indirect taxes front now in practice, required to be sustained with emphasis on higher compliance. This would enable the government to earn more for its kitty and spend part of it in creating social infrastructure. Mr. Jindal said, “Dilution of government equity in leading profit making PSUs alone could fetch at least Rs. 80,000 crore”.

The chamber is highly optimistic about the potential of the dilution of government stake in leading PSUs, indications for which have already come in the Economic Survey. Even a ten per cent dilution in PSU giants could fetch Rs. 60,000 crore and a 20 per cent dilution would still leave the Government in control of these PSUs. NTPC alone could fetch Rs. 68,000 crore if the government stake was reduced from 89.5 per cent to 51 per cent. The four power sector giants could give Rs. 98,000 crore”.

Calling for a comprehensive financial system reform package, he said “India’s financial system has to be turned into a world-class one to be eligible for a larger share of globally created resources”. It urges tapping into the infrastructure funding facility to be created by the G-20 to the extent of $100 billion for meeting part of the $500 billion infrastructure investments in the next few years.

The chamber also urged the Finance Minister to roll out ‘a stable interest rate policy, supportive for short and long term investments’ to avoid interest shocks and constraints on economic growth. Mr. Jindal said that stable interest rate regime provided for stability for investors and retention of their investment portfolios. “We should be aware of Teaser Loans as such loans entice borrowers, cost of which becomes very high for them in the long run.

Endorsing Reserve Bank of India (RBI) guidelines in credit expansion, the chamber wants a policy regime that will enable credit expansion at “viable rates while preserving credit quality so as to support return of economy to a higher growth path.” The monetary and interest rate regime should be supportive of price stability and financial stability, taking into account emerging lessons of global financial crisis,” as suggested by the RBI itself, says the study.

The study also seeks to implement suggestions of RBI to the Centre in areas of FCCBs and ECBs. The chamber demands further liberalisation of FCCBs buyback policy and extension of relaxation on the all-in-cost ceilings of ECBs up to December 2010. Besides, it has also demanded extension of special refinance facilities and term repo facility and increased limit for export credit refinance for banks up to March 2010.

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