The upcoming Budget 2014- 15 may open the doors for foreign investors to invest in all proposed sectors including defence, railways and e- commerce.
“Budgetary consultations have started. Foreign direct investment (FDI) caps may be hiked for railways, e-commerce and in defence to 100 per cent,” sources close to the development told The Pioneer.
Recently, President Pranab Mukherjee had said “My Government will follow a policy of encouraging investments, including through FDI; which will be allowed in sectors that help create jobs and assets,” adding that FDI will be permitted in defence production as well. A formal announcement unveiling plans for foreign investment is expected in the Budget next month.
“The ministry wants to resolve issues concerning inverted duty structure to revive special economic zones,” sources said. Imposition of minimum alternate tax (MAT) and dividend distribution tax (DDT) on SEZs have impacted investments and exports in these zones. The industry has raised its concerns on the matter and asked the Finance Ministry to roll back MAT and DDT.
Inverted duty structure impacts the domestic industry adversely as a manufacturers have to pay a higher price for raw material in terms of duty, while the finished product lands at lower duty and costs low.
Recently Commerce Secretary said that “We have been talking to the Finance Ministry for withdrawal of the minimum alternate tax and dividend distribution tax on SEZs and restoration of the situation as it was,” Commerce Secretary Rajeev Kher said at a press conference last Wednesday.
The Ministry is also in favour of bringing down import duties on gold and restoring normalcy in import procedures as the current account deficit is much lower compared to last year, the Secretary added.
The Centre had cracked down on gold imports last year raising import duties to 10 per cent and introducing restrictions through requirements such as the 80:20 scheme, whereby one-fifth of all gold imported into the country must be set aside for export.
Normalising the methodology of operating the controversial 80:20 scheme of gold imports and bringing down import duties could be part of this year’s Budget, the Secretary added.
The Finance Ministry, in the Budget for fiscal 2011-12, decided to introduce a minimum alternate tax of 18.5 per cent and a dividend distribution tax of 10 per cent on the zones putting an end to the tax holiday provided for in the SEZ policy.
According to the sources the ministry may also ask the Finance Ministry to announce steps to boost manufacturing sector growth. Manufacturing, which constitutes over 75 per cent of the index grew 2.6 per cent in April compared to a growth of 1.8 per cent a year earlier.