Sunday, 20 September 2015

Industry Issues and Answers by Raghuram Rajan

Background of this news
  • On September 8th 2015, many industry captains who met the Prime Minister ended up pitching demands for their own industry
What are the demands?
  • Single agency for multiple taxes
  • Multiplicity of permissions, delays and complex regulatory mechanism even as it urged the government to provide pre-existing regulatory mechanism, on a priority basis, to sectors such as agriculture and food, machinery manufacturing, electronics product and IT manufacturing, which have low environmental impact. Risk profiling of industry needs to be done. 
    • “We already have examples of these. For instance, in Punjab, a set of 131 industries have been identified as low risk and are therefore exempted from obtaining Pollution Control Board approvals,” Chandrajit Banerjee, Director General, CII, told The Indian Express. He said that the government should use technology for improving efficiency and bringing in transparency.
  • Dispute resolution
    • e-enablement of all courts to make commercial dispute resolutions quicker and more efficient
  • Environment related
    • Prune EIA process, time taken for public hearing for environmental clearances
    • relaxing the compulsory maintenance of 33% green belt by asking the district administration to identify land for green zone, 
    • rationalising guidelines for compulsory afforestation, 
    • notification of eco-sensitive zones on an urgent basis
    • Rationalising certification of settlements of forest rights which requires resolution of the Gram Sabha even in cases of no settlements of forest dwellers.
  • Taxation and Companies Act
    • Bringing a single direct tax levy, similar to the goods and proposed tax in indirect taxes, to subsume income tax, DDT, MAT and capital gains tax among others.
    • Raising the threshold for appointing independent directors as following the new Companies Act, with the rise in demand for them, there is a dearth of good independent directors with appropriate skill sets.
  • Foreign investment
    • a simplified regulatory regime for facilitating foreign investment and creating an environment of trust in the industry by promoting self-regulation after laying down a framework which will signify the minimum threshold for the industry to follow.
  • Concessions and answer to them by Raghuram Rajan (Very important point)
    • Special interest pleas for targeted stimulus, additional tax breaks and protections, directed credit, subventions and subsidies but all of these as per Raghuram Rajan have historically rendered industry uncompetitive, government over-extended, and the country incapable of regaining its rightful position amongst nations
  • As per Raghuram Rajan Following should be taken care of
    • Discipline to stick to our strategy of building the necessary institutions and creating a new path of sustainable growth where jugaad is no longer needed and for this we need the understanding and cooperation of business, not impatience and pressure
      • Problem with Jugaad --> Great way of coping (through entrepreneurial ability)but it is result of difficult business environment --> We should focus on changing environment for business. 
    • Industries want special tax benefits or interest subventions But License Permit Raj persisted precisely because some industries were favoured over others in the so-called national interest --> Solution is focus on creating an enabling environment, and let the core competencies emerge from the fillip given by the environment. e.g. IT sector emerged as a result of the investment the country made in technical education (i.e. core competency, but without specific encouragement by the government. (Very good example)

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