Government should focus on achieving 12 per cent growth in manufacturing if the GDP has to grow by 8-9 per cent or higher on a sustainable basis, Confederation of Indian Industry said on Tuesday.

In its pre-budget memorandum submitted to the government, CII said, "12 per cent plus growth in manufacturing is necessary, if the GDP has to grow at the rate of 8-9 per cent or higher on sustainable basis."

"A high growth in manufacturing is also necessary to generate greater employment opportunities. To achieve 12 per cent growth in manufacturing, constraints in five areas such as infrastructure, labour laws, cost and access to credit, technology and skill development need to be addressed," it said.

Suggesting that major chunk of the investment in infrastructure will have to come from the government, CII said privatisation of public sector enterprises appeared to be the best option for finding necessary resources.

It said an annual target for gross capital formation in infrastructure should be announced publicly to help monitor progress and achieve real results.

The chamber said establishment of autonomous regulatory mechanism and creation of an infrastructure development board with branches in the states would boost private investment in the sector.

The CII suggested setting up of Technlology Upgrade Funds Schemes for all manufacturing sectors and making provision of a weighted deduction of 150 per cent for all in-house research and development expenditure.

The industry body demanded restoration of 100 per cent rate of depreciation for energy saving devices, pollution control equipment, alternative energy producing devices, computers and devices for water conservation.

On indirect taxation, CII said that as recommended by the Kelkar Committee, further reduction in import duties should be accompanied by real progress in internal reforms to reduce the competitive cost disadvantage for the Indian industry.

Emphasising a need to eliminate the Central Sales Tax over the next two years, it suggested imposition of a universal value-added tax and countervailing duty on imports to offset the impact of VAT and implementation of Electricity Act 2003, without amendment.

It said maximum care in designing future free trade areas should be taken, as firms were out to take advantage of better infrastructure and labour market conditions in partner countries and import goods at zero duties.

It advocated sequential elimination of central sales tax by initially reducing it to two per cent with effect from March 1, 2006 and then bringing it to zero from March 1, 2007.