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
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)