Finance ministry may restore investment allowance

The finance ministry is considering a proposal by industry bodies for reintroduction of investment allowance and increase in depreciation rates to boost industrial growth.

The government had allowed deduction of up to 20 per cent in the money spent on new plant and machinery till April 1990.

According to industry associations, such tax concessions on the amount spent on new plant and machinery would push industrial growth, which showed early signs of recovery.

According to them, revival of economic growth would hinge both on consumption and investment-led economic expansion.

Industry associations like FICCI, CII and Assocham have made a strong plea for reintroduction of investment allowance in the coming budget.

The finance ministry has sought clarifications from the industry bodies on the matter.

The government withdrew the investment allowance in April 1990. Till then, Indian companies were allowed to claim a deduction of 20 per cent of the investment cost of plant and machinery while computing their profits from business.
Critics also point out that the reintroduction of investment allowance at a time when industries across sectors are operating way below their full capacity levels would lead to inefficient allocation of resources.

The finance ministry, however, seems to support the view that our economy is unique and it needs special incentives to to achieve high growth.