The Federation of Indian Export Organisations (FIEO) has released its pre-budget proposals. The Association said that R&D is 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. However, 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).
The Association said that the Department of Scientific & Industrial Research gives “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, however from April 2020 onwards this weighted tax deduction has been reduced to 100% making it as good as a business expense.
Mr Israr Ahmed, President, FIEO said “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. The Government should increase the weighted tax deduction under Section 35(2AB) may be increased to 200%. 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.
The Association has requested the Government to initiate policies 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”, Ahmed said.
The Association has also requested for extension in the sunset clause for new manufacturing companies till 31st March, 2027, to encourage more investment in the manufacturing sector and exports for companies availing a 15 percent concessional income tax rate.
