Road for reviving Capex investment in Pvt sector

Indian think-tank at the top in GOI has brought out the PLI Production Linked Incentive Schemes to

attract investments into India which can push up our Exports and also provide jobs to the locals.This twin objectives of Value add and Job add have remained Work-in-Progress and the full benefits would start flowing into the economy in about 3-5 years time.

Nevertheless the Capex appetitie beyond this ambitious scheme has remained largely muted mainly because of reasons like lack of demand momentum going forward.higher interest rates and large Govt borrowings programme as this is penultimate year before General elections.

In this scenario, one of the important avenues open to the Govt is looking at Investment allowance and Depreciation rates.Earlier it has been demonstrated that whenever the IA and Depreciation rates are increased for a limited period, there has been a pickup in Capex investments inorder to save on Corporate Taxes. But now the Tax rates have already been lowered and so it is a moot point whether any increase in IA and Depreciation rates will work.

However the past experiences are a guide for us to peep into future. Despite lower Tax rates if our India Inc. sees some avenue to save today's tax which can also partially offset raise in cost of funds then there will be appetite to take the bait.

Depreciation and IA rates may be doubled with a sunset clause at the end of two financial years can help many corporates to front load their Capex investments. Govt need not have to forego by way of tax since what Govt may give up by way of higher taxes may in part come back from Capex manufacturing companies. With the overall buoyancy in the economy on an even keel, the tax revenues will get a legup in both Direct and Indirect Tax-GST..

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