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Amidst unprecedented economic contraction, the Union budget needs to act on the Survey’s prescription to step up investment in social and physical infrastructure to boost growth. The budget must enunciate concrete strategy to better coagulate funds for infrastructure, healthcare, education, and also augment income support. Where is all the money to fund expanded investment and provision of relief to come from? From stepped up borrowing, without worrying about the likely reaction of rating agencies, whose rating has been biased. As the Survey argues, as the anticipated growth rate is higher than the rate of interest, the consequential debt is wholly sustainable. The point is that increased recourse to deficit financing is necessary, to not just plug the large infrastructural deficit in the here and now but also to crowd-in private corporate investment.
In tandem, we need forward-looking tax design to improve allocative and distributive efficiency across the board. The finance minister surely needs to eschew any new taxes and rationalise existing levies so as to incentivise investment and capital expenditure. Any populist move to win public approval by levying additional taxes on the rich would prove counterproductive — economically in the short run, and politically as well, in the long run. The securities transaction tax, which is at variance with global practice, must be done away with, to shore up a range of risk-mitigation derivative products necessary for a vibrant market for corporate bonds. And bonds are the surest form of modern arm’s-length finance.
The pandemic has hugely affected state revenues. It would make sense to replace cesses on petro-fuels with taxes shareable with the states. The budget needs to revamp infrastructure viability gap funding in healthcare, education and solid waste management. Public investment in healthcare reduces out-of-pocket expenses in healthcare. Note also that barely 2% of our urban areas have both sewage treatment plants and sewerage systems. Fixing this will foster growth and health.
This piece appeared as an editorial opinion in the print edition of The Economic Times.