In order to spur growth, it should push capex spending, ramp up disinvestment, and unfetter land and labour markets
As the economy adjusts to a new era post the structural reforms initiated last year, the upcoming Budget provides a great opportunity to bring back the growth momentum. The Finance Minister will have to do a tough balancing act, even as the Prime Minister has rejected the notion of the Budget being a populist one. The following steps could have a beneficial impact.
First things first
First, public capex in infrastructure and push to affordable housing should continue. Since these sectors have a huge multiplier effect on demand and economic activities, there is a need to continue public investments in these areas. Additionally, the Budget should provide incentives to encourage private investment.
Second, adequate focus is required on the agriculture and agro-processing sectors. There is a need to improve agriculture production, productivity, post-harvest infrastructure as well as supply management. The Budget must outline specific measures in all these areas. Strengthening of agriculture and rural economy can, in turn, bolster the growth prospects of industry as well as services sectors.
Third, the Finance Minister should consider bringing down the corporate tax rate from current 30 per cent to at least 28 per cent to begin with. This has become extremely important in light of changing tax dynamics across the globe. The changes introduced in the US Tax Code such as a massive cut in corporate tax rate from 35 per cent to 21 per cent, abolition of alternate minimum tax and allowing carry forward of losses for an indefinite period are significant. Lowering of tax rates will help Indian industry to remain competitive. Additionally, it will also lead to an increase in entrepreneurship as well as promote greater formalisation.
Fourth, on the indirect taxation front, GST has been a landmark tax reform. There has been some uncertainty post GST implementation owing to teething issues, and the government has been responsive to these concerns. The system is expected to stabilise in the next financial year and yield positive results for the economy. We now look forward to inclusion of hitherto excluded sectors in the GST, as well as convergence to fewer GST rate slabs. While most of the action on GST is expected to unfold at the GST Council, the Budget should signal the intent and direction of further reform.
Fifth, the government can consider establishing Regulation Free Zones, wherein all regulatory requirements, except those for national security and health, can be relaxed. This can be done to encourage establishment of new-age, high-technology and innovative industries.
Sixth, there is a need to focus on MSMEs, especially with respect to their access to finance and regulatory ease. There is a need to promote trade receivables and discounting systems (TReDS) amongst MSMEs through a planned marketing campaign. This will provide them a good avenue to manage liquidity, often a constraint for MSMEs.
Seventh, there is an urgent need for a strong strategic industrial policy that ties up well with our foreign trade policy, so that Indian industry becomes competitive, adding productive capacity in the economy and creating employment opportunities. Specific policy measures may be introduced to increase exports of Indian companies. For instance, government may consider extending special incentive package schemes introduced for textiles and leather sector to other export items.
Eighth, on the fiscal front, the government should put in place a well thought out plan for raising non-tax revenues. It can be a valuable source for funding long-term developmental expenditure. Disinvestments of PSUs and monetising of developed infrastructure assets can be considered. The money raised can be put in a fund, which can then be utilised for large public sector investments. Government also has access to sources such as unclaimed dividends and deposits.
Ninth, there is a need to step-up financial sector reforms. Alongside the recapitalisation plan for public sector banks, we would like to see greater reforms that would improve the functioning of our banks. Be it deployment of technology, credit appraisal skills, training needs of employees, productivity per employee, banks need to work with and improve on given benchmarks. A roadmap for bank consolidation should be given, including divesting of government stake in some of the banks to enable them to raise more capital from market. Besides banks, we need to strengthen NBFCs that have emerged as an important channel for providing credit to the MSMEs.
Tenth, the next big reforms should now come in the factor markets, including land and labour.
The writer is former president, FICCI