CII makes case for replacing bank guarantees with surety bonds in infra sector

Industry body CII has urged the government to consider replacing bank guarantees with surety bonds in the infrastructure sector and also develop the municipal bond market so that urban local bodies can raise funds.

In its recommendations for the forthcoming Union Budget 2022-23, the chamber also said asked the government to continue its investment focus and enhance capital expenditure in areas such as infrastructure to promote growth in the economy at a time when consumption demand has not picked up adequately.

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"While the economy is showing strong signs of recovery, this would be the right time to focus on future challenges such as developing a competitive manufacturing sector and climate change," said CII President T V Narendran while elaborating on the context of its suggestions.

On infrastructure, CII urged the government to consider replacing bank guarantees with surety bonds and also develop the municipal bond market so that urban local bodies can raise funds for investing in infrastructure.

Clarification on the tax treatment for the Hybrid Annuity Model (HAM) of construction contracts has also been sought, it said in a statement.

CII has also advocated the promotion of manufacturing as one of the priorities to provide a fillip to the economy.

Given the high cost of doing business, the effective rate of tax is still high, it said.

"For example, in mining, the tax rates in India are highest in the world when all the levies imposed by the Central, State and local governments, are accounted for. This should be addressed in the forthcoming Budget," it said.

In addition, there are procedural complexities and large number of permissions are required for the implementation of projects resulting in time and cost overruns, CII said, and added that to address this, projects should be allowed to proceed based on self-certification followed by audits.

The chamber's suggestions have also stressed on the necessity of policy reforms for boosting employment and sustainability, to address the imperatives of development.

On employment, it has suggested incentivising employment-intensive sectors such as tourism.

The industry body CII also recommended that the anomaly between tax rate on dividend income needs to be addressed and the tax rates on dividends for residents should be brought down to maintain parity with non-resident investors.