FIEO’S Pre-Budget proposal for FY’ 2024-25 by FIEO President

Jan 29, 2024 India Shipping News

NEW DELHI : FIEO President (OFFICIATE) Mr. Israr Ahmed has announced FIEO’s Pre- Budget proposal for the upcoming Union Budget 2024-25.

1. R&D Support key to sustained Exports growth:

R&D is an integral part of industry and a key factor for enabling manufacturing and innovation in India which is vital for exports in all sectors particularly in knowledge-based sectors such as Pharmaceutical, Bio-Technology, Electronics, IT, Aviation, Automobiles, High-end Engineering etc.

Unfortunately, India’s spending on R&D (less than 1% of GDP) is well below that in major nations such as China (2.43% of GDP), the US (3.46% of GDP), Korea (4.93% of GDP) and Israel (5.56% of GDP).

DSIR (Department of Scientific & Industrial Research) gives “In house R&D centre” recognition to Private & Public limited manufacturing companies which gives them eligibility to get the stated “weighted tax deduction” u/s 35(2AB) of the Income Tax Act 1961. 

This section provided 200% weighted tax deduction till March’ 2017 on capital and recurring expenditure incurred for conducting Research & Development activities. But from April 2020 onwards this weighted tax deduction has been reduced to 100% making it as good as a business expense.

This puts Indian companies at a disadvantage as many countries are providing 200%-300% deductions on R&D spending besides other benefits due to high gestation period and uncertainties associated with R&D investments.

It is, therefore, suggested:

 (i) Weighted tax deduction under Section 35(2AB) may be increased to 200%.

(ii) The benefit under Section 35(2AB) may also be extended to Limited Liability Partnership (LLP), Partnership Firms and Proprietary firms as MSME units largely fall in these categories.

2. Develop a Global Shipping Line of India:

We appreciate Government initiative for facilitating Container manufacturing in the country to become Atma Nirbhar. We request a similar focus for developing an Indian Shipping Line of global repute. India’s outward remittance on transport services is increasing with rising exports. We remitted over US$ 80 Bn as transport service charge in 2021. As the country moves towards the goal of US$ 1 Tn, this will touch US$ 200 Bn by 2030. A 25% share by the Indian Shipping Line can save US$ 50 Bn year on year basis. The Indian Private sector may be engaged to develop such Shipping Lines. This will also reduce arm twisting by foreign Shipping Lines particularly of our MSMEs.

3. Increase allocation for MAI Scheme with the target of US$ 2 Trillion Exports: The country is aiming to take goods and services from US$ 776 Bn recorded in 2022-23 to US$ 2000 Bn (US$ 2 Tn) by 2030. This requires aggressive export marketing to showcase Indian products and services to the global customers. The marketing support given under the Market Access Initiative (MAI) scheme, with a total allocation of less than Rs 200 crore for the current year, for promoting exports to US$ 2 Tn is grossly inadequate. Therefore, for aggressive marketing, there is a need for the creation of a corpus of minimum 0.5% of the preceding year’s exports for the MAI Scheme. A focus on marketing with support from the Government will immensely benefit our MSME exporters.  

4. Financial outlay for the District as an Export Hub (DEH) Scheme:

The Commerce Ministry has been extremely successful in roping States in the export efforts of the country. However, the State participation is still not up to their potential. Over 70% of India’s exports emanate from 5 States and Gujarat alone accounting for over 30% currently. 15 States and Union Territories have less than 1% Share.

District as an export hub through a granular approach addresses the supply-side challenges in exports at the district level. Over 500 districts have their exports strategy formulated and the District Export Promotion Committee in place.

A planned scheme to address the infrastructure gaps through Central-State funding can be the game changer and will help in exponential growth in exports from the districts thus pushing States’ exports and thereby of the country.

The Budget may announce a scheme which on pilot basis may be introduced in 50 districts with a corpus of Rs 5000 Cr with sharing between Centre and States.

5. Extension in sunset clause for new manufacturing companies till 31^st March, 2027:

The government introduced a favourable tax regime for new manufacturing companies. Section 115BAB has been inserted offering a low tax rate of 15% (plus surcharge and cess) to new manufacturing companies.

To encourage more investment in the manufacturing sector and exports, the interim Budget may extend the sunset date for commencing manufacturing from March 31, 2024, till March 31, 2027, for companies availing 15 per cent concessional income tax rate.