Budget should avoid subsidies and protection to biz | Business Standard Column

Clipped from: https://www.business-standard.com/article/opinion/budget-should-avoid-subsidies-and-protection-to-biz-123010800765_1.html

Subsidies and tax concessions are not the best ways to boost our production and exports in the medium and long term

TNC Rajagopalan

One of the main themes of the forthcoming Budget should be to build a globally competitive India. A fearful India will find it difficult to achieve the vision of becoming a developed country by 2047.

Despite all the bravado and rhetoric, India has turned more protectionist since 2014. It is due to the fear of competition that India walked out of the Regional Comprehensive Economic Partnership (RCEP) agreement after nearly ten years of negotiations. Ms. Amita Batra, Professor at Jawaharlal Nehru University, has written a number of brilliant articles in this newspaper highlighting how the tariff and non-tariff barriers, and failure to engage in multilateral trade negotiations keep us away from global value chains and poorly placed to exploit the investment opportunities that come our way.

Subsidies and tax concessions are not the best ways to boost our production and exports in the medium and long term. A panel at the World Trade Organisation had ruled against many of our export promotion schemes as incompatible with the disciplines under some multilateral agreements.

The government should take advantage of the WTO panel ruling and withdraw the schemes, as it had done in the case of Merchandise Exports from India Scheme (MEIS). It must abandon the attempts to circumvent the panel rulings through poorly conceived schemes such as manufacture in bonded warehouse without any export obligation or the DESH (Development Enterprises and Services Hubs) legislation, basically intended to help businesses whose commercial judgments have gone wrong.

The government is on the right track in trying to reduce the logistics costs in the economy from about 14 per cent to 8 per cent of the GDP. In 2022, the logistics sector saw the launch of a number of government initiatives such as the National Logistics Policy, Open Network for Digital Commerce (ONDC) and PM GatiShakti Master Plan for multi-modal connectivity. Of course, there are divergent views on whether the strategy is tilted more towards movement of cargo through road transport rather than rail transport but there is no doubt that the government must go ahead implementing the plans, and thus help the Indian producers get more competitive.

The government has also facilitated cross-border trade by extensive use of information technology to improve the Customs processes. In recent years, the government has tried to simplify the Customs tariff by eliminating many exemptions. Still, there is enough scope to improve the soft infrastructure of rules and regulations and strengthen the system to resolve disputes quickly. The GST Tribunal should be established quickly.

Indian businesses have access to abundant risk capital and cutting-edge technology as never before. There is no dearth of money for good ideas. More money is flowing into equity markets from Indian and foreign investors than at any time.

That should help our businesses achieve globally competitive scale in many sectors and develop niche markets. There ought to be no need to tax the people more and give that money to private entities, except in rare cases.

The Budget has to find ways to raise the resources and allocate them judiciously to address many issues such as enhancing national security, providing safety nets for the poor, reducing income and wealth inequities and so on. But, it should also force our producers to become more efficient and face competition. That cannot happen by giving subsidies and protection.

email: tncrajagopalan@gmail.com

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