India’s industrial representatives have said investment flow will have to wait, despite the incentives that they have received in the form of corporate tax rate cuts by the government.
Due to the demand slowdown, there is “extra inventory” in the market and fresh investments cannot be planned unless demand picks up, believes the country’s corporate sector.
Stressing the “need to put investments in asset creation”, Vikram Kirloskar, the vice-chairman of Toyota Kirloskar Motors and President of Confederation of Indian Industry (CII) said: “There is a lot of extra capacity in the market. In the auto sector itself, there is extra capacity at least to the tune of one million.”
The CII is a representative body of India’s industrial houses.
The government had announced a deep reduction in the corporate tax rate to 22 per cent from 30 per cent this September.
For new manufacturing firms, the tax rate has been reduced to 15 per cent from the existing 25 per cent to incentivise manufacturing, which should lead to job creation.
However, fresh investments from existing players may take two years to come in, claim industry representatives.
Union Finance Minister Smt.@nsitharaman holding her 4th Pre- Budget consultations with stakeholders groups from Agriculture and Agro processing Industry today in New Delhi in connection with the forthcoming Union Budget 2020-21. pic.twitter.com/OGFGAxsWQr— Ministry of Finance (@FinMinIndia) December 17, 2019
Chairman and managing director of sanitary products firm HSIL’s Sandip Somany said: “New investment from existing players is poor because people are running at about 65% capacity utilisation. Private entrepreneurs will not invest until the capacity utilisation goes up to about 80 per cent.”
“We have a positive outlook for next year,” added Somany who is also the President of Federation of Indian Chamber of Commerce and Industry (FICCI), a major platform for Indian business and industry.
Somany explained that the new manufacturing units entitled to 15 per cent taxes will take time to be incorporated, causing a delay in investments from them. “Investment from new units will come only after one-and-a-half years.”
Some believe that the investments may come up slightly earlier.
“Measures that the government has taken have a time lag. Investments will only come when demand picks up. We believe government measures will have an impact in the next six months,” said D K Aggarwal, chairman and managing director, SMC Investments and Advisors Limited.
Aggarwal is President of the PHD Chamber of Commerce and Industry, yet another industry representative body.
Industry representative bodies had come to meet Indian Finance Minister Sitharaman on Tuesday, as a part of the pre-budget consultative process. During the meeting with Sitharaman and senior finance ministry officials, the industry bodies demanded fiscal easing and further measures to boost demand.
The minister will table her second budget in Parliament in February of next year. She will hold the second round of pre-budget consultations with the industry on tax policy issues later this week.