Need to make domestic industries & services strong by fixing their problems, says SC Garg

The government's plans to overhaul the Special Economic Zones (SEZ) Act of 2005 have been delayed further.

CNBC-TV18 has learned that the bill on the Development of Enterprise and Service Hubs or the DESH bill may not be tabled in the winter session of the parliament due to the differences between the finance ministry and commerce ministry over tax concessions.

According to former finance secretary, Subhash Chandra Garg, the ultimate solution is to make domestic industries and services strong by fixing their problems.

"All the attempts from the days of export promotion zones to SEZs to DESH were premised on the basic acceptance that the domestic system of industrial production or manufacturing is not very competitive compared to the rest of the world. We have enormous additional costs in terms of power, land, labour, taxes and many other things.

So if we cannot deal with them in the domestic economy, then why not carve out the exports from those limitations, so that was the basis structure of all these attempts which have been made in the past and in that sense DESH bill is no different. I think the ultimate solution is that we must make our domestic industry as well as services more competitive to the world by changing these disabilities or problems in the domestic economy," Garg said.

He said there needs to be a different way of finding concessions for incentivizing exports and the finance ministry will have objections if you ask for more and more tax concessions.

"The objective of incentivising exports is sought to be achieved by providing tax concessions but many of these tax concessions have not been WTO compliant. So we have had problems with the concessions in the SEZ regime. So now the effort is to find some way to provide additional concessions.

Now we also have lowered the tax rates on the manufacturing companies, we have PLI schemes for neutralising the additional cost of doing business in the country, so over and above all this if you ask for more and more of tax concessions and in a manner which is distortive of domestic competition then it is quite understandable that the finance ministry will object to it,” he said.

Garg opined that India should change its approach and make the whole country an exporting hub for services.

He said, "In manufacturing, we don’t have a technological advantage. Even if you take semiconductors or renewables which are the future manufacturing things, there we don’t have a technological advantage. So if we keep on going after them we may not achieve better results than what we have achieved in the last 3-4 iterations of these bills. So I think we should change the approach completely from going after these DESH hubs or SEZs for manufacturing and instead of that we should make the whole country and exporting hub for services.