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The Ceylon National Chamber of Industries commended the Government for its strategy of lowering the debt on one hand and controlling the recurrent expenditure on unproductive areas on the other, as announced in Budget 2003. Here are some of the views by the CNCI on the budget proposals.

Budgeting to save Rs. 1.5 billion by rationalising the public sector cadre and another Rs. 2.8 billion by the disposal of idle assets is most welcome. But we feel this is only a modest amount. It is hoped that the Government having realised that our country has one of the greatest ratios of public officers to the population in the world will endeavour to effect greater pruning of the State Sector thus not only realising a cost saving on the unproductive sector but will also achieve a more efficient and better-paid Public Sector which will undoubtedly foster industrial development rather than being an obstacle to it as at present.

Another positive step which is most welcome is the proposed Economic Management Law and the Fiscal Management responsibility Law.

CNCI sees in the budget, many new areas of opportunity being created for industries. Building materials, agro-based industries, agricultural tools and implements, equipment for fisheries and processing of same and sports goods are some of them.

A special incentive package offered under the proposed BOI to develop the regions is an encouraging step. But we are concerned as to why this is being confined to BOI industries. Our Chamber has persistently been seeking a level playing field between the BOI and non-BOI concerns. It is hoped that these incentives will be available to the industry in general and not confined to BOI concerns only.

Reform on land laws and making available the state lands for private Enterprises is most welcome. It is hoped that this will lead to planned industrial estates and zones throughout the country to facilitate healthy development of industries.

The proposed legislation regarding labour matters is commendable but more needs to be done in that sector. More is necessary to improve the productivity of our manpower.

The importance of overhauling the educational system to cater to the present and future needs of the country should not be overlooked. This will not only meet the development needs of the country but will also avoid the frustration of the educated youth who at present possess qualifications which does not give them jobs.

The proposals for rehabilitation of non-performing and under-performing industries are very timely. The success of this however, will depend on the criteria that are still to be determined. Our Chamber will be glad to work closely with the Government in the effective implementation of this proposal.

Introduction of duties of 2 to 10% on those which do not attract duties (this includes raw materials and machinery etc) on the one hand and the proposal to phase out the surcharge on the other are counterproductive to the competitiveness of the industries. Industries are not seeking handouts and endeavours to be competitive. Poor infrastructure, high cost of power and interest and outdated labour laws are some of the major factors which inhibits the local industry being competitive. Thus to set off these handicaps the local industry has to be supported by tariff adjustments. Therefore the imposition of additional duties on raw materials and the removal of surcharge on the finished goods will have serious consequences and we do hope that these will be reconsidered.

Proposals in the budget for power, which is a major concern to us, are insufficient. Development of 300 MW Kerawalpitiya, incentives for the private sector for mini power projects and expecting the Private Sector to develop larger power plants is not a realistic solution.

Given the world economic scenario, our own political instability, with the endurable peace still to be confirmed by an ultimate political settlement and in a relatively small economy such as ours private entrepreneurs be it local or foreign are not likely to venture readily into infrastructure projects which are of long pay-backs.

Thus a proactive role by the State is a prerequisite for the quick realisation of the coal power plants which are the country's priority.

Encouragement for Venture Capital Companies is timely for finding low-cost capital for the industry is a concern.

The manner in which the VAT has been introduced on the Banks appears to be in conflict with the principles of Value Added Tax. Banks are sure to pass this on to the borrowers just as they did with the NSL.

Thus the cost to the industry is bound to go up. It is heartening to note that the Government has taken note of the need to improve the effectiveness of the two State Banks to reduce the interest to the borrower and we hope this will be accomplished soon.

Relaxation of some of the foreign exchange regulations such as the issue of bid bonds, forward purchase of foreign exchange and to purchase foreign exchange from any bank to settle import bills on DA and DP will be helpful to the industries.

One of our major concerns is the extension of the VAT to retailers. This in practice is bound to increase the cost of living as this VAT will be passed over to the consumer due to lack of proper understanding. This step is most inopportune and unwise for social and political stability.

Considering the fact that it is expected to collect only Rs. 800 million and for which too we doubt the capacity of the collection machinery to deliver the goods, it would be prudent to reconsider this proposal.

The extension of the debit tax and the 15% tax on inward remittances are negative steps of the budget proposals. The latter particularly along with the extension of the VAT to retailers will adversely affect the poorer sections of our society.

CNCI is conscious of the limited resources of the Government saddled with huge debts and its limitation to mobilise sufficient revenue. Given this limitation the Budget has attempted to lay the foundation for the economic development of the country. Our comments on the budget have been made with the full realisation of these aspects. CNCI also thanks the Government for having embodied in the Budget a number of suggestions we made in our Budget proposals.

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