By Sajjan Jindal
Over the past few years, the government had undertaken a series of transformational reforms that not only impacted the economy but also had a lasting impression on the mindset of people. Some of the structural reforms include introduction of GST, the bankruptcy code, and demonetisation.
Some other reforms such as Niti Aayog Digital India
and Jan Dhan Yojna, MUDRA yojna, Make in India, PM Jeevan Beema Yojna, Suraksha Beema Yojna, Fasal Bima Yojna, Atal Pension Yojna, Garib kalyan yojna, Udaan Scheme and Swachh BharatBSE 3.29 %
Abhiyaan, Skill India, Beti Bachao Beti Padhao, Smart city mission, National Sports Talent Search Scheme are expected to show positive meaningful impact in the medium to long term.
These transformational reforms contributed to India sustaining an average growth rate of 7.3% over the past four years.
However, some of these transformational and structural reforms such as demonetisation and GST also led to short-term pain in the rural and MSME sector and a consequent slowdown in the pace of growth of our economy. Income levels dropped in the rural economy, and consumption was affected.
It was thus important in this budget for the government to boost the rural / Agri economy and ensure that the country was on track to achieve an 8% growth on a sustainable basis.
Towards this, we saw the government targeting the four engines of economy for pump priming in this Budget. The first pillar was to boost consumption. The Budget gave a fillip to the MSME sector by announcing several important measures such as credit support, capital and interest subsidy. The proposal of the government is to bring together the PSBs and Corporate on the Trade Electronic Discounting System (TReDS) that will provide easier access to credit to the MSME. The Gramin Agricultrual Market (GrAMs) shall be linked to the electronic National Agricultural Market (e-NAM) for enabling direct sale by the farmers, ensuring better realization for their produce. The revision to refinancing norms under the MUDRA Yojna to the NBFCs, that are the big lenders to the MSMES, shall further improve availability of credit to the MSMEs. All of these measures will lead to a big boost to farm income, thereby increasing rural consumption. Further, improving road connectivity will ensure faster and more efficient delivery of farm produce. By setting up 42 mega food parks and commercially viable farm producer companies with tax incentives, promoting cluster organic farming, horticulture, animal husbandry, fisheries, all MSME and rural sectors are getting a targeted push, which will eventually lead to revival of the rural jobs and employment in MSMEs. Also, fixing the MSP of crops at 1.5x cost of produce is also in line with the vision of our Prime Minister Shri Narendra Modi to double the farm income by 2022.
The second targeted area was to boost investments. With the introduction of the Insolvency and Bankruptcy Code, more than 500 companies have already been admitted by National Company Law Tribunal and are in various stages of resolution. In addition, the recapitalization of public sector banks with Rs 2.11 lac crore package will address the systemic issue of the twin balance sheet problem. The last Economic Survey had raised the issue of deteriorating corporate balance sheets leading to higher NPAs in banks. With the cleaning up of the corporate balance sheet as well as lending new life to the PSU Banks, the banks will now be ready to support the new growth initiatives while being more prudent in lending. To facilitate resolution, important amendments under the Income Tax Act have been announced especially regarding the Minimum Alternate Tax (MAT). It is now a matter of time before private investment cycle kicks in. The Make in India initiatives is already promoting investments in various sectors.
Exports represented the third focus area for the government. For a sustained 8%-plus GDP growth, exports have to contribute as India is still not a consumption-driven economy. Currently at $30 bn, the government estimates the agri exports potential of over $100 bn and has created a road map through liberalization of the agri exports. Implementation of the Sagarmala project will also efficient movement of goods to ports for exports. Higher allocation of funds to the animal husbandry, fisheries department, extension of Kisan Credit Card scheme to these units, increasing institutional credit to the agri sector, favorable tax treatment to Farm Producer Organizations will all ensure realization of the $100 bn agri export potential. Many MSMEs, which are legally below the threshold of GST, are voluntarily registering under the GST to take advantage of input tax credits to lower their costs and become cost competitive. which is expected to grow at over 15% in 2017-18.
We are already seeing the fourth and the last pillar was targeting employment creation. Relaxation of the 240-day norm to 150 days for 1.3x deduction of wages paid for new employees in the leather and footwear industries, 3-year Provident Fund contribution by the government for new employees in select MSME industries shall certainly boost employment. Similarly, the creation of iconic tourist destinations, and introduction of fixed term employment among other schemes shall boost overall employment. The intention of the government to hike customs duty for certain goods that can be produced completely in India is to ensure that the same is produced within the country. This, again, will generate employment, given the expected long-term demand for the same. The measures to reduce the corporate tax rate to 25% for the MSME sector will boost their investible surplus. All of these endeavors are laudable.
The decision to raise tax exemption limit on interest income and increased deduction for healthcare insurance premium for senior citizens will support a dignified life in old age. Further, the massive healthcare protection plan for 10 crore poor and vulnerable families is a great step towards providing healthcare facilities to the marginal section of the society.
While all of these measures are commendable, the government should also consider fulfilling its promise of reducing corporate income tax rate from 30% to 25% that it had made to Corporate India. After all, large corporates in India still pay one of the highest tax rates globally, making them less competitive. The government should also re-look at the introduction of Long Term Capital Gains Tax, which is done without removing the Securities Transaction Tax and without the cost indexation benefit. This will reduce the attractiveness of the Indian equities market for long-term investors.
A Rs 1.38 lakh crore allocation (13% higher vs 2017-18) to health, education and social security, Rs 5.97 lakh crore outlay (20% higher vs 2017-18) on infrastructure development are pointers to a growth that is supported with an intention to improve the living conditions of the citizens of India.
Overall, Budget 2018 has delivered a massive 14.34 lakh crore push on rural development to reduce the gap between rural Bharat and urban India. This, in my view, will propel India towards realizing its 8%-plus GDP growth rate dream. Amen.