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NEW DELHI: Ahead of the budget, the government is looking at ways to revive investment by the private sector, which has remained muted, including through fresh tax concessions.
Well aware of the need to prop up muted private investment in the manufacturing sector to create more jobs in the economy, the finance ministry and PMO have been toying with various options. Commerce and industry minister Suresh Prabhu also is learnt to have made some suggestions, including an “investment allowance”, which provides tax benefits for fresh investment in plant and machinery, sources told TOI.
The idea is to provide sops for a longer term, instead of opening a two-to-three year window, so that there is certainty for the next few years and businesses can plan accordingly. In 2013, a similar benefit was offered to manufacturing sector for investments of over Rs 100 crore in plant and machinery for two years.
This was to come in the form of a deduction of 15% of the cost of new assets acquired. Safeguards had been built in to avoid misuse and the scheme was later extended to March 2017 with the investment floor reduced to over Rs 25 crore. Now, Prabhu and his ministry have pitched for a similar proposal.
While a final outcome is expected in the budget next week, sources said, merely offering tax concessions may not work as several industries are operating at 70% capacity utilisation and will not invest afresh until idle capacity is put to use, since they have already set aside funds and are paying interest on loans taken for the investment.
In addition, with several companies across sectors grappling with massive bad debt problem, investment is unlikely to resume only due to tax concessions on offer, said a tax consultant. For a government going into election in just over a year, creating jobs is seen to be crucial as public investment has failed to do the trick.
Since coming to office in May 2014, the government has focused on higher public spending in roads, railways and irrigation in the hope that the economic activity will pick up.