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What industry wants

The second of a series on sectoral demands prepared by PricewaterhouseCoopers.

business Updated: Feb 25, 2008 21:09 IST


The Indian automotive industry is a key contributor to the economy. Despite the boom in the sector, several challenges threaten to derail its growth. The Government must implement steps to implement the “Automotive Mission Plan”. The auto industry in competitor countries in Asia have benefited immensely from proactive policies of their Governments.

The dollar depreciation and cheap imports from low cost countries threaten the competitiveness of the domestic auto component industry. India is already a net importer of auto components. To promote domestic manufacturing, Budget 2008 should not reduce the Customs duty further.

R&D is the foundation for sustainable competitive advantage but is a long-term activity. The 5 years period available for 150% weighted tax deduction must be extended to 15 years and should include R&D outsourced to recognized foreign institutions.

There is an acute shortage of skilled labour in the automotive sector. The public-private participation scheme for adopting ITIs must provide greater autonomy to the private partner. Creating capacity in vocational training must be encouraged through fiscal and tax incentives.

SMEs are the backbone of the manufacturing sector, particularly auto components. Despite being under the Priority Lending scheme, their access to low cost capital is severely constrained. The Government must create a modernization-cum-upgradation fund for auto components to provide an interest rate subsidy for capital expenditure.
Dhiraj Mathur Executive Director, PricewaterhouseCoopers

While all the major sectors in the economy, have been identifying their “wish lists” respectively, the sector that would be the default trigger for the success of many of these, banking, too would have a set of expectations from
We look at these under two broad categories: those affecting customers and those affecting the banks themselves.

As investments by retail customers in financial products become more and more commoditized and entities compete for their share of the wallet, bank products (deposits) which offer the unique combination of liquidity, safety and guaranteed returns, have been loosing out in terms of tax benefits over time. This trend needs to be looked into, particularly for long terms products. Similarly, for asset products (loans) to encourage better repayment discipline and inculcate some financial planning, good repayment track records could be recognized with some “tax notches” or “additional tax increments”.

Banks have to often bear the “cross of the economy’s burden”, through mandated lending’s, deflecting inflation by encouraging consumer spending and lending a hand in infrastructure projects, despite ALM mismatches. All this amidst a constant requirement for capital.

The budget could signal some SPVs for sectors like housing, infrastructure, special corpus for further pushing consumer financing below cost of funds or PLR and finally, some special instruments for risk management to be considered under Basel II as approved risk mitigants.

Robin Roy, Associate Director, Financial Services, PricewaterhouseCoopers