However, the business environment still needs to improve. Setting up a business in India remains a herculean task. An entrepreneur wishing to set up a business in major cities like Delhi or Bangalore needs a number of licenses, documents and approvals.
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An online survey by The Times of India (TOI) and professional services firm Deloitte showed that the majority of respondents (30.4%) want the government to adopt measures to improve the ease of doing business in India. in the next 2022 budget.
Meanwhile, 26.5% of respondents want more government spending to boost demand. Streamlining the goods and services tax (GST) process with the tax administration was another request from respondents, according to the survey.
To increase liquidity in the economy, the government can opt for capital account convertibility, said Rohinton Sidhwa, a partner at Deloitte.
Capital account convertibility means that an individual will have no restriction on the amount of rupees that can be converted into foreign currency to acquire a foreign asset. Likewise, there will be no restriction for a Non-Resident Indian (NRI) to bring in any amount of foreign currency to acquire any asset in India.
“Allowing Indian infrastructure companies to resort to borrowing at global interest rates rather than artificially higher local rates. This will improve liquidity,” Sidhwa added.
The survey also showed that 35.2% of respondents believe that although the ranking has improved, there is room for further improvement. Nearly 34.8% responded that the increase in ranking is not that big, India still has some way to go to ease business processes.
Simplify the corporate tax structure
In one of its boldest moves, the government in 2019 gave a massive tax boon of Rs 1.45 lakh crore to India Inc by cutting corporate tax rates from 29.5% to 25.17% for companies that do not apply for exemptions. For start-up manufacturing companies, the tax rate was 15%.
Under this provision, companies can choose to pay 22% income tax if they waive tax exemptions and incentives. With the surtax and the tax, the effective income tax is reduced to 25.17%.
Similarly, to give a boost to the “Make in India” initiative, manufacturing companies established from October 2019 can choose to pay a 15% tax (17.01% in force) if they do not benefit of any exemption or incentive. These companies are expected to begin production by March 31, 2023.
About 47.5 percent of respondents to the TOI-Deloitte survey felt that reducing corporate tax levels to compete with global economies was a positive step, but not enough to promote global investment. While 37.3% said India was still at a disadvantage compared to other economies.
To give the manufacturing sector an extra boost, Sidhwa said “the government could consider extending this 15% tax rate to all manufacturing companies rather than just new ones.”
Moreover, to become a global giant, the budget must focus on introducing globally competitive tax rates and processes, as agreed by 32% of the TOI-Deloitte survey. Nearly 26% also believe that reducing government regulation and controls will also help Indian businesses stand out in global competition.
Push for “Vocal for local” initiatives
According to Deloitte, higher import duties can encourage domestic manufacturing of products, but at the same time, they also encourage the gray market of products.
Measures such as the Production Linked Incentive Program (PLI), state incentives in the form of tax refunds, capital grants (based on investment and job creation), Single window compliance and approval mechanism can thus push domestic manufacturing, which encourages local initiative.
The government may also consider rationalizing the GST rate on goods while avoiding an inverted duty structure.
Wean Chinese investments
Known as the “factory of the world”, China has long been the center of global supply chains, given its favorable factors of production and a strong business ecosystem.
However, the world’s second-largest economy has faced a myriad of challenges ranging from power shortages, the debt crisis to a slowdown in manufacturing.
Additionally, the disruptions caused by Covid have led to an urgent need to diversify global supply chains. Many companies have opted for the “China+1 strategy” in order to diversify their production sources outside of China.
India has become a preferred destination for foreign companies and must capitalize on this opportunity.
“Availability of affordable industrial land power and water coupled with a stable regime is a key issue. India needs to start building a larger semiconductor and electronics industry,” Rohinton said. Sidhva.
TOI-Deloitte survey shows majority of respondents believe India needs more steps to wean investment from China to become ‘Atmanirbhar’.
Strengthen the scope of the PLI system
While the PLI program promises to make India a manufacturing hub in the coming years, 35.8% of those surveyed by TOI-Deloitte said the program was a great idea but missed many opportunities. While 28.3% said infrastructure was weak, logistics will pose a challenge.
The scheme has been expanded to cover 13 sectors to date.
According to Deloitte, the PLI program will help boost exports over the next 6-8 years as companies begin manufacturing and expand their capabilities.
The additional production will also help boost domestic sales and exports.
Ease the limitations of the PLI scheme
Although the LIP program has been welcomed with open arms by the manufacturing sector, many challenges remain.
First, the short shelf life due to the limited application window does not allow potential investors and projects to plan investments in India.
Second, the limited coverage of sectors and the exclusion of certain products under existing regimes is a major challenge. These include malt products under food processing, cotton blends under textiles, Ayush preparations under the pharmaceutical PLI, a wider range of equipment and electronic components under the PLI for white goods, broader coverage of components under the automotive PLI.
Additionally, high investments, hard-coded sales targets and growth thresholds are deterrents. There are several economic environments or business conditions that can affect project performance. For example, recent chip shortages, Covid-related demand impact, etc., Deloitte said.
Also, the role of R&D in policies is quite limited as some related capital expenditure can be included in the investment. However, the policies focus on sales, not R&D.
Saurabh Kanchan suggests exempting these government contributions and grants from tax. He said: “Government grants, whether through the LIP or state industrial policies, are intended to support industries on the basis of a budgeted commitment. Any subsidy tax affects the transmission of budgeted amounts to industry. These should be exempt from income tax.
Where all sectors can be included
Deloitte says the government should expand the reach of the PLI program to other sectors as it stimulates investment, creates jobs, increases production that is supplied to the domestic market (increased local tax payments) or exported (foreign currencies foreigners in India).
It may consider including sectors where India is largely dependent on imports and where domestic manufacturing is at very low levels.
Additional sector coverage for electronics, industrial equipment, footwear, toys, hotels and restaurants can be provided, he added.
Extend hiring incentives after the pandemic
In November 2020, the government announced a job creation program to ensure an increase in the employment rate.
Known as Atmanirbhar Bharat Rozgar Yonaja, the program would provide provident fund grants to employers for hiring new workers as well as those who lost their jobs during the pandemic.
Additionally, ETH members earning a monthly salary of less than Rs 15,000 who quit their jobs during the pandemic from March 1, 2020 to September 30, 2020 and are employed on or after October 1, 2020 were also part of the scheme.
However, the TOI-Deloitte survey showed very mixed responses. While 55.3 percent said the incentives were helpful, 44 percent said hiring activity should be left to the markets since economic activity has picked up steam.
Facilitate the challenges faced by taxpayers
A country’s tax structure has a significant impact on its ease of investing. The Goods and Services Tax (GST) includes several procedures and is a complex structure.
“The multiplicity of procedures under the GST is the result of state-level training and the cross-empowerment of the central government and the state government. In each state, there are procedures by ordinary jurisdiction, reimbursement jurisdiction and intelligence wings. Each procedure unfolds with opportunities for general information gathering, summons, audits and investigations. This has a significant impact on the ease of doing business and attracting investment in India,” said Saurabh Kanchan, partner at Deloitte.
In addition, blocking of credit, freezing of bank accounts, collection procedures due to the inadequacy of declarations without issuance of notice, issuance of subpoenas to senior management, cancellation of registration in due to procedural non-compliances or delays pose enormous challenges for the industry, Deloitte noted.
Therefore, it is imperative that the government reconsider the implementation of stricter provisions under the GST, such as the reconciliation of 100% of the input tax credit, which has a negative impact on the situation of the tax fund. turnover of an already struggling sector.
Another reason for the administrative hassles and additional information requirements faced by taxpayers is the time lag between paying the tax and allocating the SGST component of the IGST to the states.