CII - Recommendations for Economic Growth

CII - Recommendations
for Economic Growth
september 2017

Immediate Impactful Measures for the Economy
I. Interest rates
i. Lower interest rates in one go by 100 basis points: This will boost personal loans,
consumption and investments.
ii. Interest rate subvention for certain key sectors: Exports for competitiveness; low-cost
housing to boost demand for construction; and MSME to reverse declining investments.
iii. These sectors may also be provided with appropriate fiscal incentive packages
II. Exports
i. Immediate depreciation of rupee by 5%
ii. Increase capital of ECGC to enable more coverage
III. Undertake bank recapitalisation through Government stake sale
IV. Relax fiscal deficit target for a year
V. Create a National Infrastructure Project Monitoring Group in the PMO
VI. Taxation
i. Lower direct taxes: Outline roadmap for reduction in corporate income tax rates to
18% .
ii. Protect MSME from retrospective opening of tax returns
VII. Push Disinvestment in PSUs to garner capital for spend in Infrastructure.
VIII. Issues in GST
i. Allow C-Form set-off
ii. Address reverse charge and offer incentives for registration
iii. Address mismatch of higher rates on inputs and lower rates on final goods
iv. Grandfather existing region-based incentives
v. Increase duties on gold to shift gold imports to financial savings
IX. Labour regulations
i. Reinstate fixed term employment for all sectors
ii. Provide fiscal incentives to firms for creation of incremental jobs
iii. Raise limit under Chapter V-B of Industrial Disputes Act to 500 and under Factories Act
to 50
CII - Recommendations for Economic Growth
© Confederation of Indian Industry
i

CII – Recommendations for Economic Growth 1
A. Growth 1
B. GST Implementation 3
C. Investments 4
D. Employment 5
E. Exports 5
Recommendations for Sectors 7
a. Agriculture & Food Processing Sector 7
b. MSMEs 7
c. Infrastructure 8
d. Construction 9
e. Manufacturing 9
f. Electronics 10
g. Textiles and Apparel Sector 10
h. Mineral and Metal based Industries 11
i. Automotives 11
j. Aerospace and Defence 11
k. Tourism 12
l. Healthcare 12
ii
Contents

1
CII – Recommendations for Economic Growth
A. Growth
Issue CII Recommendations
Inadequate demand Reduce interest rates by 100 basis points to spur consumption and•
investments
Elevate productive public capital expenditure in the most responsive•
sectors such as roads and highways, low-cost housing, and power.
Fiscal consolidation targets may be relaxed as suggested by the
FRBM Act (for exceptional circumstances) A target of fiscal deficit
as a ratio of non-government savings and not GDP might give a
better picture of fiscal performance.
Discourage state governments from curtailing capital investments.•
Leverage strengthening global economy and push exports by orderly•
managed depreciation of rupee by at least 10%.
Lower cost of acquisition of automotive, durables, and engineering•
goods to customer through measures such as lower rate of GST,
direct stimulus, and enabling select class of funding mechanisms
on the lines of USA credit for new vehicles, hybrids and electric
vehicles.
• Lower corporate income taxes to 18%.
High interest rates Provide interest rate subvention for key sectors:
Exports to make interest rates globally competitive•
Low-cost housing to boost demand for construction•
MSME to reverse declining investments•
High level of NPAs
in banks leading to
constrained credit flow
Commence process to recapitalize banks with defined timelines.•
Encourage alternate sources of lending, especially to MSMEs, e.g.•
e-commerce companies could provide funding to their vendors,
securitization of exporters’ receivables, etc.
Non-availability of buyers
for stressed assets under
Stressed assets are being bought back by original owners and this•
should not be allowed
Insolvency & Bankruptcy
Code
Allow companies to take over management of assets at an operational•
level without necessarily getting into ownership issues
Enable NIIF to take over sound assets that are stranded due to•
paucity of funds by current equity holders. Power sector is already
exploring such options. Similar approaches for large infrastructure
projects may be considered.

2
Outstandings in the
telecom sector are
hampering credit revival
Postpone the payment of spectrum money, spectrum usage charge,
etc.
Weakening of public sector
banks
Strengthen financial system outside of the banks as well. Banks should be
allowed to dilute their prudential standards, followed by stake sale.
PSUs/Government
departments take too
long to make due
payments
Ensure timely payments by PSUs/Government departments for goods
and services purchased especially from MSME to enable suppliers to
plan their operations
No significant reform in
factor markets of land,
labour or capital
Land prices have
appreciated and new
rehabilitation packages
have escalated costs
Fast-track consultative and legislative measures for undertaking reform
in land acquisition, labour regulations and development of deep and
liquid bond markets.
Allow such land cost escalations to be provided for after due
diligence

3
B. GST Implementation
With introduction of GST,
C-forms are eliminated,
leading to several
projects using products
not covered under
GST, stranded with low
returns on account of
higher tax outgo.
Allow C-Form set-off
Cumbersome process for
claiming input tax credit.
Clear and simple framework needs to be defined and instituted for
Absence of clarity on
how tax set-off for North
East and Special Category
States are to be treated.
Grandfathering such incentives to encourage investments in these
regions.
Scope of GST excludes
large sectors such as
electricity, oil & gas,
real estate, tobacco and
alcohol, leaving no case for
Expand coverage of GST to include electricity, oil and gas, alcohol and
real estate at the earliest.
Furthermore, exclusion
of these sectors has
escalated cost of exports
due to withdrawal of
duty drawback benefit,
especially in sectors like
apparel.
Compensate duty drawback benefits to keep exports cost
competitive.
Absence of effective
redressal mechanism.
Senior officer in MoF to be made nodal officer for guidance and
redressal.
Sectors like pharma,
tractors, etc. affected
due to delays in refund
of inverted tax incidence.
Expedite creation of mechanism for refund of inverted tax in these
sectors.
Exporters are facing
several issues
Allow payment of IGST for imports to be debited under Advance•
Authorisation
Exempt advance receipts for exports from payment of GST•
Manufacturers not directly exporting should not have GST•
applicable
Merchant exporters to be allowed to purchase goods without•
payment of tax on furnishing a declaration form
Ensure quick refund of IGST paid on exports.•

4
Simplicity and certainty
of the tax system
Improve digital infrastructure and connectivity by increasing data speed
of broadband especially in remote places.
High compliance burden
for MSME and services
sectors
Re-examine provision of reverse charge under GST as large firms
prefer not to deal with unregistered units. Offer some gains for
registration.
Enhance ECGC scheme and create a fund.
C. Investments
Large catalytic
infrastructure projects to
be fast -tracked.
Create a National Infrastructure Project Monitoring Group to be set up
in the PMO, to help identify and address challenges in projects such
as DMIC, freight corridors, Housing for All, etc. which have a multiplier
effect. This Group should ensure a time-bound action plan.
Lack of adequate
protection during
disasters
Disaster relief projects to be looked at as new triggers to spur
infrastructure investments, e.g. housing, roads, bridges, etc. in flood
affected areas.
Pressure on working
capital of MSME for
various reasons such as
GST, contract terms, etc
Increase SMA-1 (Special Mention Account) guidelines from 60-90•
days to 180-365 days (time allowed for principal or interest payment
before a loan turns into an NPA)
Procurement - All states should be encouraged to expedite adoption•
of GEM, Government e-Marketplace
Enhance time, especially for SMEs, for payments of taxes and duties•
under GST
Create capital insurance scheme to protect MSME against delayed•
payments
Contract conditions in
public procurement are
creating disadvantages
and lack of level playing
field for local suppliers
Purchases from domestic buyers to be done through letters of credit•
(currently being done only for foreign entities)
Expedite and ensure implementation of Public Procurement•
Policy
Lack of private sector
investments
Zero duty regime in
some sectors creating
disadvantages for local
manufacturers
Ensure parity of domestic sales from EOU/SEZs with manufacturers•
in the DTA (Domestic Tariff Area)
Introduce incentives and framework to promote Assets as Service•
which will lead to lowered CAPEX, aid demand creation, and enhance
employment in services.
Disabilities on account
of high cost of power,
logistics, finance etc.
WTO-compatible production subsidies based on value addition done
in country

5
Sudden policy
announcements
with low lead times
for preparation for
compliance
Prescription of
technology versus
standard
Time taken for approvals
and clearances
Ensure policy certainty (emission norms, quality control orders•
etc.) for all sectors including automotives, cement etc. and offer
adequate lead times to ensure compliance.
Government to mandate standards (e.g. emissions) as opposed to•
prescribing technology platforms
Ease compliance processes, encourage self-certification. Transition•
from being auditor to facilitator.
Fast track approvals for affordable housing which have provisioned•
for last mile infra and amenities for projects such as connectivity,
school, primary health center.
Incentive package for large scale projects that will create jobs.•
D. Employment
Flexibility in employment
is lacking, deterring
regular hiring
Reinstate fixed term employment for all manufacturing sectors
Tax incentives do not
favor hiring
Provide fiscal incentives to firms for creation of incremental jobs
Restrictive labour
regulations discourage
employment
Raise limit under Chapter V-B of Industrial Disputes Act to 500
Raise limit under Factories Act to 50
Complex labour
regulations
Bring out consolidated labour codes in line with Second National Labour
Commission recommendations
E. Exports
Poor quality of exported
goods and weak
adoption of global
standards
Initiate a National Standards Mission: Harmonise Indian standards•
with global standards.
In view of the role of multiple Government departments in•
framing and enforcing standards, there is a need to have National
Standard Coordinating Agency, which could work under Cabinet
Secretariat.
Export credit is too
low, just 1% of total
Commercial Banks’
lending
To boost exports, the exporters should have access to easily available•
credit. Allow Commercial Banks to lend more to SMEs exporters.
Expand interest rate subvention from current rate to 4%•

6
Lack of dedicated agency
for trade negotiations
and remedial actions
hampers Indian interests.
Set up an umbrella USTR-cum-USITC type body to strengthen the trade
negotiating capacity and streamline review processes for speedy and
time bound trade remedial actions.
No policies at state
government level for
promoting exports
States need to prepare export strategies based on their potential,
including promotion of goods and services, linkages to ports and trade
facilitation.
Lack of scale and brand Enhance Indian industry branding - integrate India’s commercial•
missions with brand building initiative - structured engagement with
diplomats for industry sensitization and specific KRAs for growth
of market share of India product portfolio
6x6 export market push (6 markets, 6-year plan) - evolve an integrated•
export oriented approach for Champion sectors comprising
o Participation in key trade shows
o Setting up Indian products centric showcase, permanent display
centers etc.
Poor market access
due to increasing
protectionism
Declining share of
existing markets due to
competition
Sign FTAs with key markets to give an instant boost to sectors such•
as textiles and automotive.
Explore new markets by expediting FTA negotiations with EAEU•
(Eurasian Economic Union) and Peru. Negotiate asymmetrical trade
agreements like SAFTA with African nations. Look beyond tariffs in
trade negotiations (focus on standards and regulatory barriers) to
ensure effective market access.
The list of products
getting export incentives
is too large
Make export incentives more targeted and result oriented. Direct
export incentives to those products which have high export potential
and facing duty disadvantage in external markets.

7
Recommendations for Sectors
a. Agriculture & Food Processing Sector
Absence of stimulus to
catalyze FDI in organized
food retail which can
create supply chain
transformation and
strengthen linkages of
farmers to markets.
Allow foreign investors to also retail nonfood products (personal/
homecare products) linked to their investments in rural infrastructure
as an offset.
Lack of infrastructure to
link to markets
Improve extension services, mini solar powered cold chains and storage
facilities.
b. MSMEs
Outdated definition
of MSME in MSME
Development Act 2006
Amend the MSME Development Act to define MSME to take into
account inflation since 2006
Lack of adequate
and affordable credit,
especially in light of
structural reforms like
demonetization and GST.
Government to share data on financial health with Financial•
Institutions to expedite approvals
Issuance of debt restructuring norms by RBI for SMEs•
NBFCs should be brought into the formal banking structure for•
credit expansion for MSMEs
Issues in opening of tax
returns
Protect MSME from retrospective opening of tax returns
Public Procurement
Policy not being
implemented in letter
and spirit
Audit to ascertain compliance, ensuring 20% MSME procurement•
norms; cascade policy to State Governments.
Time-consuming
clearances continue
to impede smooth
functioning of MSMEs
Implement accountable single window systems for online submission
of all reports, filing of returns, etc. and self-audits and certifications
for firms paying a certain threshold amount as tax revenue.
Delayed payments are
causing big hardship to
MSME
Regulations for payments to MSME must be enforced with a public
platform for MSME complaints

8
c. Infrastructure
Dispute Resolution in
Construction sector
- Substantial amount
of funds are locked
in claims with various
Government Ministries/
PSUs
Implement Cabinet decision of August 2016 on settlement of claims,
particularly in construction sector.
Payment of 75% of
disputed amount not
effected due to demand
of an additional bank
guarantee
PSUs should be directed to not claim additional bank guarantees on
interest amount
Lack of monitoring of
actual payments by
PSUs to construction
companies on disputed
amounts
Create online monitoring mechanism to track payments as has been
done by NHAI
Road BOT projects under
construction held up
Amend exit clause so that NHAI may infuse one-time compensation•
to project developers where delays are due to factors not attributable
to them.
Introduce elaborate guidelines on e-Procurement, e-Tendering and•
e-PACE platform
Financial health of
discoms and lack of
reforms to address
rationalization of tariffs
that should reflect the
true cost of power
Unreliable power offtake
and supply
Low offtake of power
being generated leading
to inefficiency and
unreasonable returns for
investors
PPAs are being opened
up for renegotiation
of prices, leading to
business uncertainty
Timely tariff revisions at the States that reflect true cost of•
power.
Ensure reliability of supply through rules that penalize DISCOMS•
on disruption of supply to industrial consumers. These could be to
the tune of 1.25 - 1.5 times the tariff charged to the consumer (or
alternately ~ 0.85 times the cost of oil burnt in DG sets by these
consumers should be paid to them by the DISCOMS).
To ensure that existing generation capacity gets fully utilized and•
existing PPAs are honored, fresh capacity addition needs to be
re-evaluated. There needs to be a hiatus on the setting up of
new thermal capacity which has been planned till such time this
evaluation is completed.
Regulators to ensure that PPAs are honoured to restore investor•
confidence even as targets for adding capacity need to be
revisited.

9
Indian solar
manufacturing not
competitive; dependence
on China, Taiwan
Announce Solar Manufacturing Policy with effective interventions•
such as addressing cost of electricity and land.
Identify clearly the products that India should focus on in the•
manufacturing basket
Aviation - Indian MRO
industry unable to
expand and grow to
meet demands of
domestic market or cater
to global customers.
Correct skewed GST structure for MRO services which currently
disincentivises airlines to service their aircraft in India.
d. Construction
One-time Debt
Realignment for the
Construction Sector
Segregation of sustainable and unsustainable debt to address legacy•
issues viz. stalled projects, irregular bank limits due to stretched
payment cycle, unilateral Bank Guarantee invocations, Letter of
Credit (LC) devolvement etc.
Providing extended repayment tenor for Sustainable debt.•
Conversion of unsustainable debt to equity/ other instruments so•
that lenders can get benefit of upside on revival of company.
Provide need-based working capital facilities for sourcing and•
execution of orders for sustaining optimal scale of operations.
Similarly, provide bank guarantee/Letter of Credit facility, when the
company is under debt restructuring or restructured
Inequitable Contract
Clauses
These clauses need to be reviewed and revised so that the interests
of both the client and the contractor are taken care of. CEO of NITI
Aayog may chair a committee consisting of stakeholders and conclude
this matter.
e. Manufacturing
Labour Minimum wages should be fixed at realistic levels. Higher minimum
wages not linked to productivity could be unsustainable for industry.
Build industrial corridors
to create hubs / common
facilities
Create plug and play parks for manufacturing companies along•
with common testing, skill development, export facilitation and
other facilities.
Create multi modal logistics network covering inland waterways,•
dedicated railway freight corridors, national roadways and ports,
electronic tolling through RFIDs.

10
f. Electronics
Domestic industry
adversely impacted by
zero duty regime of
ITA-1; little incentive to
foster manufacturing
Increase BCD on Non-ITA-1 items to 20%•
Disbursal of subsidies / grants to be linked with value addition•
Time bound compensation of disabilities linked with amount of•
value addition
Retention of IGST paid on the value added by manufacturers across•
the value chain, for 7 years (excluding input tax credit on account
of capital goods)
Structural disabilities
impeding India as a
manufacturing hub for
mobile phones
MEIS to be raised to 5%
Need to foster domestic
Printed Circuit Boards
(PCBs) and PCB-
Assemblies as they are
at the heart of electronic
manufacturing
BCD on PCBAs to be raised to 10%•
Refund of CGST on the domestically manufactured inputs (RM,•
intermediate goods, components etc.) used in manufacturing of
the finished product.
Production incentive for domestically manufactured components•
g. Textiles and Apparel Sector
Exports adversely
impacted due to
GST framework. Post
GST, there are many
unadjusted levies /
taxes / surcharges,
amounting to about 7%
to 10% of sale value,
on various textiles
and clothing products
and this is hurting the
competitiveness of the
sector
Allow Drawback Rates to cover all taxes (such as petroleum) which
are not part of GST.

11
h. Mineral and Metal based Industries
Raw material security
being impeded by poor
and limited pipeline of
coal and iron ore blocks
and other minerals for
auction
Coal & Iron Ore blocks to be free of lien before being placed for•
auction, including a priori forest and environmental clearances.
Expedite passage and implementation of the National Mineral•
Exploration Policy.
i. Automotives
Lack of regulatory
uncertainty, esp. w.r.t.
electric vehicles impeding
investment decisions
Maintaining Long-term regulatory certainty- If the indus-try’s•
platform is to shift from combustion engine to Elec-tric Vehicles
(EVs), there is a need for a clear roadmap for Electric Vehicles to
draw up early plans for investments in the sector
Announce roadmap for FAME scheme for the remaining 8 years to•
enable industry to plan investments and develop indigenous design
and component manufacturing base.
Create a Green Vehicle Exchange incentive for Fleet up-gradation /•
End of Life vehicles whilst upgrading to hybrid or electric vehicles;
bias for higher local content
j. Aerospace and Defence
Lack of time bound•
approval of orders
leading to multi-
billion dollar deals
being held up; sunk
investments with no
clarity on project
implementation
Reliance on•
nomination basis vs
competitive bidding
Fast track big ticket items under ‘Make’ Projects in Defense sector•
like Future Infantry Combat Vehicle (FICV), Battlefield Management
System (BMS) and Tactical Communication System (TCS) which are
in “evaluation” stages for many years now. Future Infantry Combat
Vehicle (FICV) project alone has the potential to create huge impact
on defence manufacturing in India
Providing Level Playing Field in defence sector. To promote•
competition amongst the Indian industry, including DPSUs/OFBs,
the orders should be through competition rather than nomination
basis.
Mandate and enforce strict timelines from Acceptance of Necessity•
(AON) to Award of Contract

k. Tourism
Lack of tourism
infrastructure
To create jobs in the tourism sector, states to be encouraged to•
develop tourist sites and infrastructure.
l. Healthcare
Universal healthcare
through medical
insurance
Action National Health Policy with greater participation of private
sector and hub and spoke model of clinics and specialty hospitals
Provide infrastructure status to healthcare sector
Inadequate facilities
for medical education
and gaps in number of
healthcare professionals
Reform of Medical Regulator and setting up more hospitals for
teaching in partnership with state governments
* * * * * * * * * * * * * * *

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