While the economists are of the view that the income tax exemption limit has nothing to do with reversal of recessionary trend, industrialists said that raising of income-tax limit would go long way in boosting demand.

Responding to a pre-budget questionaire on revival of industry, the eminent economist, Dr. Malcolms Adiseshiah, said he did not favour raising income-tax exemption limit as it had little relation to the recession in demand.

The income-tax exemption limit was already high and there was really no case for raising it further unless it was prompted by the motive of inflationary adjustment, Dr. Adiseshiah, Chairman, Madras Institute of Development Studies, said.

But industrialist Mr. Kanti Kumar Podar, who is also president of FICCI, said raising of income-tax limit would boost consumer demand, which would ultimately help in breaking recession which had been plaguing the Indian Industry.

Dr. Y. K. Alagh, noted economist and Vice Chancellor of Jawahar Lal Nehru University, outrightly rejected the idea of raising income- tax limit to reverse recessionary trend saying there was no economic logic in raising income tax exemption limit in a poor country.

Speaking on the same wave length, the Director General, National Council of Applied Economic Research (NACER), Dr.S.L. Rao, brushed aside the suggestion of raising the income-tax exemption limit to boost demand for industrial goods.

Advocating raising of income tax exemption limit, the president of Associated Chamber of Commerce and Industry of India (Assocham), Dr. N.M Dhuldhoya, said the present level of income–tax exemption did not take care of inflation in the last two years.

Many tax payers were in the low income bracket and this affected their purchasing power, he explained adding that a reasonable increase in the exemption limit and reduction in the prevailing income-tax rates would enlarge disposable income and domestic demand.

Expressing identical views, the President, Confederation of Indian Industry (CII), Dr. J. Irani, favoured raising the basic exemption limit of income-tax to boost demand.

Basic exemption limit should be raised from Rs 28,000 to Rs. 36,000 he suggests adding this would leave enough funds with the individual after tax, resulting in higher demand.

Economists and industrialists, however, agreed that the Government should take steps like lowering of interest rates, slashing of excise and import tariffs and resumption of capital expenditure for the revival of industrial production, which is now hit by recession.

Dr. Adiseshiah was of the view that Indian industry in general was a high cost industry and every effort should be made to reduce costs.

There was a need to reduce interest rates for the corporate sector, which now stood at 22 to 25 per cent compared to four to five percent in other advanced countries like France, Germany, Japan and UK, he said.

For instance, he said, even a reduction of the interest rate by one per cent would enable companies to cut prices by one per cent or increase their retained earning by seven per cent as well as reduce industrial, particularly of the capital intensive industries by 10 to 15 per cent.

Dr. Adiseshiah suggested that in order to break the current spell of recession, the Government should resume capital expenditure both in agriculture, capital goods industries and the social sectors such as education, health, social welfare, employment generation, which have suffered badly in the last two budgets.

Dr. S.L Rao said it was time for reduction in interest rates immediately for exporters and more gradually for others.

Referring to the need for reducing excise duty and import tariff, he notes if the Chelliah Committee recommendations on excise duties and import tariffs are accepted there would be little repercussion on fiscal deficits.

Indeed, revenues could go up sharply because of substantial increase in demand and production, apart from the new products, which would be subject to excise, he explained suggesting that import tariff should come down over the next three years to international levels.

Expressing similar views, the FICCI President said since inflation had already come down to less than seven per cent, industry expected that Government should reduce the interest rate immediately to 15 per cent and 12 per cent in a phased manner in six months.

Industry had to cut down cost, he said adding that the total quantum of interest paid on loans constituted an important element on the cost of production.

The FICCI chief said reduction in excise levy and import tariff on inputs used by Industry would help in stepping up production.

Referring to other measures to reverse recessionary trend, Mr. Podar agreed with Dr. Adiseshiah that developmental expenditure of the Government should be maintained for a balance in the economy and conducive conditions should be created for investment by the private sector.

There should be gradual reduction in Government’s since the Government has been a major investor in basic and vital sector of industries in the past, Mr. Podar suggested.

Responding to questionaire, Dr. Alagh, stressed that the 1993-94 Budget must firmly set the economy on a higher medium-term growth path in order to break the recessionary trend.

He suggested an increase in productive investment in general and in the agricultural and infrastructural sector in particular.

Dr. N. M. Dhuldhoya, said in order to boost industrial production, the Government should ensure that the genuine credit needs of industry and trade were met by reasonable interest rates.

Stressing the need for slashing excise duty and import tariff, Dr. Dhuldhoya said the aim of reduction in custom and excise duties was to increase efficiency and accelerate industrial growth.

Dr. J. D. Agarwal, Director, Indian Institute of Finance, said in order to reverse the recessionary trend, the Government must reduce excise duties by about 20 percent and customs duties by about by 15 per cent in the 1993-94 Budget.

The Government should also restore the capital expenditure in infrastructure to spur industrial production Dr. Agarwal said.

The CII President said the forthcoming Budget must see drastic cut in interest rates. In the present high cost economy, reduction in interest rate would enable companies to cut prices, to help boost demand.