Though the Interim Budget was presented by the Finance Minister in February 2024, now it is the time to present a full-fledged Union Budget 2024-25 in July 2024. Preparations for the same have already begun with consultative meetings with different stakeholders which include economists, farmers, NBFCs, market experts and many others.
Optimistic About GDP
People in the official circles are upbeat about higher GDP growth of 8.2 per cent, booming manufacturing at 9.9 per cent and inflation cooled as Consumer Price Index (CPI) inflation went down to 4.82 per cent in April 2024. WPI is in the negative zone, fiscal deficit is lower than the Budget estimates, rupee though depreciating is at a much lower rate, as it depreciated only 1.4 per cent in the last fiscal year. The current account deficit in balance of payment (BOP) is lower at hardly 0.7 per cent of GDP.
In 2023-24, foreign exchange reserves reached an all time high at $665.8 billion by the first week of June, and there is much more to celebrate. Now the challenge before Modi 3.0 is to sustain this growth and also address the issue of inflation, especially food inflation and unemployment. Generally people who understand economics are happy due to the Government’s fiscal prudence, manufacturing growth and handling of BOP issues. Continuing with fiscal prudence is something which cannot be compromised. This is a precondition to keep inflation under check and push growth. There was a consensus about continuing with a lower fiscal deficit. Since the Government has already proposed a fiscal deficit of 5.1 per cent of GDP in the Interim Budget 2024-25, there is no reason for the Government to deviate from the same. But there are pressing needs due to which the Government may need more funds for Capex, especially when it comes to infrastructure; spending on welfare schemes, including Prime Minister Awaas Yojana; PLI scheme, especially with extension of the same in the new sectors. Moreover, there is also an urgency to address the problem of unemployment, especially educated youth unemployment.
Union Finance Minister Nirmala Sitharaman will have to strike a balance between riding on private investment and employment generation when she presents the Union Budget 2024-25 this July. This Budget will be the first one of the newly sworn in Modi Government
AI and Employment
A case for Robot Tax is being raised about loss of jobs due to new technology, especially AI. There is a view that though, we cannot and should not avoid new technology, but as the same is causing job losses, those who are gaining, must compensate the victims. That is, workers who are losing jobs or new entrants in the job market, who are not being absorbed. While referring to the attack on job creation, the possibility of exploring ‘Robot Tax’ can be explored. Proceeds from this tax can be used to reskill and rehabilitate workers who are displaced. It may be interesting to note that recently a paper by the IMF has noted that though AI can boost overall employment and wages, argued that it can “put large swaths of the labour force out of work for extended periods making for a painful transition.”
PLI Designed For MSME
Encouraged by the success of the first phase of the PLI scheme, which helped reduce dependence on China in APIs, defence equipment, mobile phones, electronics, we may design the next phase of PLI around the MSME sector. This is important to make a PLI scheme for MSME for more balanced industrial development, with an eye on employment generation.
Custom Duty on E-Products
It’s understood that as per the outcome of 13th Ministerial Conference of WTO, from 14th Ministerial of WTO, moratorium on custom duty on digital products will end. As preparation for imposing custom duty on digital products, we can initiate custom duty on digitisable goods with most favoured nation tariff of zero percent on electronic transmissions by creating specific tariff heads in Indian Custom Tariff Manual for software and other digital goods transmitted electronically including operating system software, application software, multimedia, support or driver data and other digital products. Indonesia has already taken this step. This will facilitate collection of data and imposing custom duty at appropriate rates after April 1, 2026, when the moratorium on custom duty of e-transmission, imposed by WTO shall end.
Encouraging Private Investment
No doubt, in the long run, imposition of tariffs on e-products will encourage private investment in digital and electronically transmitted products. There is an urgent need to boost investment in several other industries and start-ups. To finance this investment from domestic sources, we need to give a conducive atmosphere for domestic investors.
In 2023-24, foreign exchange reserves reached an all time high at $665.8 billion by the first week of June, and there is much more to celebrate. Now the challenge before Modi 3.0 is to sustain this growth and also address the issue of inflation, especially food inflation and unemployment
To Promote Private Investment, we can Undertake the Following Measures:
- Long term capital gain parity may be introduced between listed, unlisted space to remove friction in flow of Alternative Investment Funds (AIFs). Investments held for more than one year by AIFs are classified as long-term capital gains and accordingly taxed as per the rate applicable to long-term capital gain tax. Long-term capital gains on listed shares are typically taxable at the rate of 10 per cent and on unlisted shares and other assets at the rate of 20 per cent.
- Production Linked Incentives Scheme (PLI Scheme) should be introduced for import substitution from China including organic chemicals, plastic and EV related equipment. *Industrial parks with plug and play facilities, common tool rooms and R&D facilities may be established in declared defence corridors for small and medium enterprises. ISRO model can be adopted for enhancing defence production at reasonable cost.
- Though the Government has made it clear that those returning back home must pay the requisite tax and majority of those ‘reverse flipping’ are even ready to pay the same, yet there remain issues related to red-tapism and procedures and tons of paperwork. Since, it’s (reverse flipping) a one-time affair, the Government may come out with a package for facilitating reverse flipping and reducing inconvenience for those who are returning. This can be a win-win situation for all; be it Government revenue, start-up ecosystem and country as a whole.
- Blended Fund of Funds may be anchored by the Government as a subordinate mechanism for funding long term innovation.
