Cover Story: Expecting out of the box ideas
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Cover Story: Expecting out of the box ideas

Archive Manager by Archive Manager
Feb 21, 2015, 12:00 am IST
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The expectations are high from this budget. The Finance Minister Arun Jaitley has said that the economic reforms are an ongoing process and therefore it shouldn’t be presumed that all the announcements will be made in the budget only. However, the budget is something more than a fund allocation exercise and therefore it is expected that the ministries will come up with some out of box ideas to keep the development cycle moving and that too on a faster pace.
Policy paralysis has come to an end and the government is keen to make India a better place to do business. Despite resistance from the labour unions, Prime Minister has clearly shown his intensions by bringing ordinances to give a message that the economic reforms would not be sacrificed on the altar of political differences. CBDT has decided not to pursue the Vodafone share issue case, which sent positive message to the industry about a tax stable regime.

Drivers of Inclusive Growth

  • Pradhan Mantri Jan Dhan Yojana is National Mission for Financial Inclusion to ensure access to financial services in an affordable manner. About 11.5 crore bank accounts have already been opened under the scheme till January 20 covering 99.74 per cent of households.
  • Sansad Adarsh Gram Yojana aims at turning villages into model villages not just through infrastructure development but gender equality, dignity of women, social justice, community service, cleanliness etc. Each MP has to develop 5 model villages in their constituencies during the whole tenure.
  • Namami Gange Yojana is a dream project of PM Modi. Government announced
    Rs 2037-crore for it in the maiden budget to clean up the Ganga.
  • Pradhan Mantri Krishi Sinchayee Yojana is to facilitate access to irrigation. A sum of Rs.1,000 crore were set aside for the scheme in last budget.
  • Shramev Jayate scheme is to expected to benefit four crore labourers. A dedicated Shram Suvidha Portal would allot Labour Identification Number (LIN) to nearly 6 lakh units and allow them to file online compliance for 16 out of 44 labour laws.
  • Make in India campaign was initiated so that India has ample job opportunities and the economy gets a boost. It seeks to make India a self-reliant country.
  • Digital India scheme is to change India into an electronically empowered economy. All Government departments and people are to be connected with each other digitally, so that there is effective governance. There is also a plan to connect all villages and rural areas through internet networks.
  • Swachh Bharat Abhiyan is to make India a clean nation by 2019, the 150th birth anniversary of Mahatma Gandhi. The plan is to provide toilet and sanitation facilities in all rural and remote areas, to create public awareness of cleanliness, to clean roads, streets, encroachments and make India one of the cleanest countries of the world.
  • Beti Bachao-Beti Padhao scheme has been launched in 100 districts across the country to make girls independent both socially and financially through education.

Although the petrol and diesel prices are decontrolled but slump in the crude oil prices has provided some elbow to the Finance Minister to look upon certain concessions demanded by the industry. However, Finance Minister has to deal with the mess left behind by the earlier government, which is in the form of “Interest and debt service cost” coming to approximately 24 per cent of the overall expenditure. The worst part is that large part of the borrowings on which the government is paying such a large interest is not represented by assets, which means that the interest payout on this liability is circulating into the economy without concomitant production which adds to inflation. Interest payout is so huge that it leaves little room for the government to manage the twin aspects of fiscal consolidation and for capital expenditure. P Chidambaram factored an unexpected buoyancy in the revenue collection and gave a tough task of managing fiscal deficit targets to his successor. The government may consider coming out with all the details on the state of affairs it inherited from its predecessor.
On a macro level, inflation has eased down and industrial production has also shown some positive signs. Reserve Bank has also decreased the interest rates, which will help to stimulate investment and considering the fact that the crude oil prices are not expected to go up significantly in near future, inflation is not a big concern with regard to the decrease in interest rates. From a long run perspective it is also important to note that inflation can’t be contained by monetary policy only and production should also be increased to check it. Real estate sector is also expected to see surge after the interest rate cut and the developers are also eager to clear their inventory.
In the previous budget, Finance Minister increased the basic slab rates marginally but the individual tax payers expect something more from him. Wish list of the corporate sector is quite long and they expect various concessions from the government. Some of the changes which are expected are:
Vision Make in India and decentralised growth: PM has announced his ambitious project and want to transform the country as a manufacturing hub. A lopsided development achieved on the back of rise of service sector only is more vulnerable to financial turmoil and therefore manufacturing sector must be revived to achieve a sustainable economic growth, which should be in line with the demographic profile of our country. Although the new government has taken a lot of steps to make India a better place for doing business but the public sector has to lead the Make in India vision which will be gradually supported by private sector. Huge cash and liquid assets are sitting in the balance sheet of PSUs and they should lead the investment process which is going to take its own time to yield the results.
Make in India should also focus on achieving the decentralised growth which will create job opportunities and ensure that the benefits of economic developments are reaching to the masses. The government has to ensure the equitable distribution of the gains of the economic development which will help to solve the problem of the growing economic disparity between the rich and poor and also help to curb various social ailments.
Structural changes for implementation of GST: One of the biggest tax reforms has been introduced in the Parliament in the form of “Goods and Service Tax (GST)” which is expected to be implemented from the next year. GST will replace the existing taxes with a unified tax which will reduce the compliance cost and would also ensure a stable indirect tax regime. However the Finance Minister should remove the ambiguities between different rules more particularly relating to availment/utilisation of credit. Administrative mechanism for excise and service tax should be aligned, which will help smooth migration towards the new taxation regime.
Minimum Alternate Tax (MAT) should be linked with investment also: The FM should consider linking the lower MAT rate with the investments made by the entity (like fixing some ratio between turnover and investment with certain other conditions). It will encourage the investment and loss of direct tax revenue will be offset by increase in indirect taxes.
Be rational on rationalisation of subsidies: It is a well-known fact that large part of government incentive never reaches the target population and there are ways through which the leakage can be stopped. Government has done a very good job in terms of opening of bank accounts under the ‘Jan Dhan Yojana’ and the subsidies should be linked with the Aadhar Card and bank account of the beneficiary. It is a long process and till that time no such action should be taken which will adversely affect the masses.
Agricultural sector and MSME: MSMEs play a pivotal role in economy and they help in achieving the goal of decentralised growth coupled with employment generation. Our SMEs are unable to compete with the Chinese goods and our markets are flooded with imported items. Taxation efficient regime (more particularly Indirect taxes) is needed to make our products more competitive and provision should be made to make the finances available at a comparative lower rate.
Government took an initiative of setting up “Long Term Rural Credit Fund” in the previous budget and now the bank accounts are also opened. Magnitude of this fund should be expanded and other schemes like ‘Kisan Credit Card’ should be attached with it to provide credit facilities to farmers.
Shshank Saurav (The writer is a Chartered Accountant)

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