CII Proposes Green Financing, Digital Infrastructure and Tax Reforms for India's Growth

CII Proposes Green Financing, Digital Infrastructure and Tax Reforms for India’s Growth

New Delhi: The Confederation of Indian Industry (CII) has put forward comprehensive recommendations for the upcoming Union Budget 2025-26. These suggestions encompass aligning Priority Sector Lending (PSL) allocations with emerging priorities, transitioning to outcome-based credit distribution metrics, boosting domestic consumption and generating employment to harness India’s demographic dividend.

Aligning the PSL Framework to Emerging Priorities

PSL, mandated by the Reserve Bank of India (RBI), ensures that sectors crucial to India’s socio-economic growth receive adequate financial support. However, the Confederation of Indian Industry (CII) has highlighted the need to recalibrate the PSL framework to reflect India’s evolving economic priorities and align it with the vision of Viksit Bharat 2047.

CII pointed out discrepancies such as agriculture’s reduced contribution to GDP—from over 30% in the 1990s to 14% today—despite maintaining an 18% PSL allocation. Meanwhile, sectors like infrastructure, innovative manufacturing, and digital technologies remain underfunded.

“Sectors like agriculture have reduced contribution to GDP from 30% in the 1990s to about 14% now. Hence, it is time that the PSL framework be reviewed every 3-4 years to align with emerging priorities. PSL allocations should reflect GDP contributions and sectoral growth potential,” said CII Director General Chandrajit Banerjee.

CII’s recommendations include:

Green Initiatives: Prioritize financing for green energy projects, electric vehicles, and climate-resilient agriculture.
Digital Infrastructure: Focus on digital technologies, including artificial intelligence and advanced data networks.
Healthcare: Allocate funds for healthcare innovation and infrastructure development.

To support these emerging sectors, CII also suggested establishing a high-level committee to review PSL norms and exploring the need for new Development Finance Institutions (DFIs) beyond existing ones like SIDBI and NABFID.

Transition to Outcome-Based Metrics

CII recommended a shift in the PSL framework from absolute lending targets to outcome-based metrics. This approach would emphasize measurable developmental outcomes over numerical targets, ensuring impact-driven credit distribution.

Boosting Domestic Consumption

Highlighting the erosion of purchasing power due to inflationary pressures, CII emphasized targeted government interventions to enhance disposable incomes and stimulate consumer spending. Specific measures include:

Reducing Excise Duty on Fuel: Fuel prices, significantly influenced by central excise duties, drive inflation and household expenditures. CII recommended lowering excise duties to reflect the 40% decrease in global crude oil prices since May 2022.
Personal Income Tax Reforms: Reducing marginal tax rates for individuals earning up to Rs 20 lakh annually to bridge the gap between the highest personal tax rate (42.74%) and the corporate tax rate (25.17%).
Increasing Minimum Wages: Raise the daily wage under the MGNREGS from Rs 267 to Rs 375, as per the 2017 Expert Committee’s recommendation. This would involve an additional expenditure of Rs 42,000 crore.
Enhancing PM-KISAN Benefits: Increase annual payouts under PM-KISAN from Rs 6,000 to Rs 8,000, requiring an additional Rs 20,000 crore.
Revising PMAY Costs: Update unit costs under the PMAY-G and PMAY-U schemes to account for inflation.
Consumption Vouchers: Introduce time-bound consumption vouchers for low-income groups, targeting spending on specific goods and services.

Employment Generation and Labour Market Reforms

CII has urged the government to prioritize employment generation through an integrated National Employment Policy that unifies various employment-focused schemes across ministries and states. Key recommendations include:

Universal Labour Information Management System (ULIMS): Develop a ULIMS under the National Career Service (NCS) to provide detailed insights into job opportunities, skills demand, and training programs.
Tax Incentives for Employment: Replace Section 80JJAA with a provision offering tax deductions for businesses hiring new employees, capped at Rs 1 lakh per employee per month for the first three years.
Support for Labour-Intensive Sectors: Provide targeted support for construction, textiles, tourism, and low-skilled manufacturing sectors to boost employment.
Enhancing Rural Opportunities: Launch internship programs in rural government offices to engage college-educated youth.
Increasing Female Workforce Participation: Propose gender-sensitive employment policies, including government-supported creches, dormitories funded through CSR, and formalization of the care economy.

CII also proposed the establishment of an International Mobility Authority under the Ministry of External Affairs to facilitate overseas employment opportunities for Indian youth. This authority would collaborate with the Ministry of Skill Development and Entrepreneurship to align skill development programs with global demands.

Strengthening Financial Savings

CII highlighted a decline in household savings, with bank deposits’ share of financial assets falling from 56.4% in FY20 to 45.2% in FY24. To address this, CII suggested:

Lowering the tax rate on interest income from bank deposits.
Reducing the lock-in period for fixed deposits with preferential tax treatment from five to three years.

The Confederation of Indian Industry’s recommendations for the PSL framework, Union Budget 2025-26, and employment generation highlight the need for targeted interventions to drive economic growth, address inflationary pressures, and leverage India’s demographic dividend. With a focus on aligning financial policies with emerging priorities, CII’s proposals present a roadmap for sustained socio-economic development.