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Lower interest rate can help reap full benefit of cash ban, says CII

Monday, May 15, 2017

India Inc has invoked the demand supply dynamics, calling for lower interest rates for private investment to pick up that will help the government achieve full benefit of cash ban. In an interview to PTI, CII President Shobana Kamineni said the industry is "reasonably prepared" for implementing the goods and service tax (GST) from July 1 and suggested fixing of a sunset date for cess to be levied on demerit and luxury goods.

Also, the anti-profiteering provision should not be used in a discretionary manner, she suggested. Kamineni said the recent ordinance to resolve bad loans will give banks that have been hesitant for the past two years the confidence to lend. But for demand to pick up, the industry would need lower interest rates.

"What was really required was to unlock the logjam (NPAs). It is just 50 projects worth Rs 6 lakh crore that are stuck. The ordinance allows them to look at it very comprehensively and take appropriate solutions, whichever way it can be done," she said. "A one size fits all would not have worked, so now they will tailor-make solutions. It will allow banks to look at projects which have put in application for loans. So, the supply side would open up."

With the ordinance, right steps have been taken on the supply side, but the demand side is waiting for a trigger or a signal of lower interest rate, she pointed out. "It (a rate cut) really completes the demonetisation cycle. Demonetisation was not just there to suck out black money or bring more taxpayers in the system. One part of it was also how it can help the economy become stronger," Kamineni explained.

Banks are straddled with anywhere between Rs 9 lakh crore and Rs 12 lakh crore of stressed assets — made up of bad loans, restructured debt and advances to companies that cannot meet servicing obligations.

The government earlier this month through an ordinance amended laws to give powers to the RBI to order banks to initiate insolvency proceedings against defaulters and create committees to advise them on recovering NPAs. Kamineni cited the case of strong macroeconomic indicators that will get a leg-up from GST.

"We want the government to roll out GST from July 1. We are as prepared as we would be on September 1. Industry is reasonably prepared. CII is doing a series of training programme with MSMEs. The focused training programme is intended to help associations get trained on implication of GST," she said.

GST will subsume excise, service tax, VAT and other local levies and create a unified market for seamless transfer of goods and services. The GST Council, comprising Union and state finance ministers, has decided on a four tier tax structure of 5, 12, 18 and 28%. Besides, for demerit and luxury goods, a cess will be levied on top of the peak rate. The cess will be used to compensate states for any revenue loss arising out of GST implementation.

"We think the cess is a bit discretionary and what CII would recommend is we have an equalisation fund that has a sunset. Because cess is one more layer of tax, we would want a sunset date for cess," she said. With regard to the anti-profiteering provision provided in the GST law, Kamineni said it leaves scope for ambiguity of declaring something as profiteering and since most products have MRPs, the scope for profiteering does not arise. "We are against anything that is ambiguous and discriminatory that leaves it for interpretation," she stressed.

The government is keen that benefit of lower taxes is passed on to consumers and so, an anti-profiteering measure has been woven into the GST law. It provides for constituting an authority to examine whether input tax credits availed by any registered taxable person, or the reduction in the price on account of lower tax rate, have actually resulted in a commensurate fall in the price of the said goods and services supplied.

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