IMC’s 100 day Programme to Revive the Economy

The newly elected IMC President, Niranjan Hiranandani, recently wrote to the prime minister and shared the IMC’s 100 day programme to revive the economy. The Plan and programme as proposed by IMC has been detailed below:-

I. Objectives:

§ reverse decline in growth rate of the economy

§ encourage spend on capex for ongoing infrastructure and other projects

§ control fiscal deficit and provide headroom for fiscal stimulus

§ prevent slide in the currency value

§ alleviate food inflation for the less privileged

§ improve availability of gas for power

§ introduce important tax reform in the country

II. Action Points for the next 100 days:

1) Reduce CRR and Repo Rates by 1% each – this will help improve availability, and reduce cost, of capital for ongoing infrastructure projects, encourage demand through loans for purchase of consumer durables, two-wheelers, passenger and commercial vehicles and housing, help in controlling interest cost for governments, and most importantly change business sentiment for the better. (While this is an RBI matter, Government needs to engage with and prevail on RBI. Section 7(1) of RBI Act, 1934: “The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest.”)

2) Reduce subsidies on fuel and fertilizers- The recent reduction in oil prices offers an opportunity to reduce fuel and fertilizer subsidies. A politically more-palatable way of reducing subsidies is to eliminate immediately diesel subsidy on sales of diesel in urban areas while announcing a freeze on the absolute quantum of fuel and fertilizer subsidies for all products. A politically-challenging move, but desirable, is to announce an automatic roadmap of price adjustments over the next 12 months to eliminate diesel subsidy, and have total pass-through of diesel cost thereafter, and to eliminate the frozen quantum of fuel and fertilizer subsidies completely over a 3-year period. (This 3-year period will give time to consumers to prepare for price increases, implement conservation practices and improve efficiency.) It is imperative to move towards fiscal prudence to allow for headroom in future for fiscal stimulus if required

3) Increase distribution through PDS of quantum of foodgrains per person – in the context of surplus rice and wheat in storage and the uncertain current monsoon, this measure, together with immediate encouragement for imports of pulses and edible oils, can be a preventive for food inflation for the less privileged.

4) Incentive price for increased production of gas – with the fall in Reliance’s KG-basin gas output, some power plants are operating way below capacity. Till gas price is revised in 2014, Government should allow some higher price (say 20% from current levels) for increased output (as compared to the previous year) of natural gas as an incentive for producers such as Reliance, ONGC, Cairn and others; alleviating power shortage this way will help in inflation control also through higher production and lower cost of production, and will also serve farmers and other citizens who will have less load-shedding.

5) Bring about tax reform:

5.1) Decide that GAAR and other similar provisions will be made only prospective, with no retrospective application – this will help in enabling FII (and FDI) investment to increase, and prevent further slide in the rupee value.

5.2) Direct Tax Code (DTC) – DTC should be finalized in the monsoon session of Parliament, taking into account the inputs and concerns of all stakeholders, particularly those relating to GAAR.

5.3) Goods and Services Tax (GST) – the Constitutional Amendment Bill needs to be finalized in the monsoon session of Parliament taking into account the recommendations of the Parliamentary Panel as well as the concerns of states.

5.4) Negative List Based Taxation of Services – this needs to be addressed by eliminating dual taxation of service tax and VAT on the same transaction, widening scope of CENVAT credit entitlement as per prevailing international practices, and setting a higher threshold limit for a cost-effective tax administration.

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