Home Spotlight Will FM come out with a path breaking Budget?

Will FM come out with a path breaking Budget?

This is not the kind of economic situation a Finance Minister would have expected while presenting the Union Budget, least of all a person who is not even one year old at North Block. GDP growth at less than 5%, industrial production in continued negative territory, consumption demand falling and dwindling tax collections – all have restricted the manoeuvrability of the Finance Minister. Naturally one would expect a path breaking budget which would be reformist with plenty of levers for resuscitating the growth while not crossing the ‘Lakshman Rekha’ of fiscal prudence. Despite these limitations, expectations are running high from the Union Budget 2020-21.

High expectations

For example, Dr Sangita Reddy, President, FICCI expects steps to boost consumption. “We look forward to government continuing taking steps towards bridging the existing gaps and giving out positive signals to boost the sentiment, consumption and investments. Apart from providing cheaper loans, more efforts must be made to increase incomes, especially in the rural areas. This can be achieved through an increase in the quantum of income support under PM-KISAN and expansion of the Direct Benefit Transfer scheme. Steps are also required to boost construction, infrastructure and exports,” says Dr Reddy. “FICCI is also of the view that a significant focus on the economies of the future technologies like artificial intelligence, along with added stress on science and innovation, are also critical to add a parallel wave of growth,” adds Dr Reddy. On the other hand, Confederation of Indian Industry (CII) wants the Union Budget to announce a roadmap for convergence of all corporate tax rates to 15 per cent, with no exemptions and incentives, by 1st April 2023. “A signalling to this effect could help further boost investor sentiment and encourage investments”, says Mr Vikram Kirloskar, President, CII.

Ending NBFC crisis

Experts eel enhancing liquidity to Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) may give an immediate boost to demand in the economy. NBFCs are known to provide much required finance to those who are not getting it from banking sources like real estate, small entrepreneurs, etc. At present, entrepreneurs like dealers, distributors, small scale manufacturers in ceramics, etc are finding it difficult to get ready finance thereby hampering their growth and over all demand. RBI can help by defining a framework for ‘lender of last resort’ for NBFCs and HFCs having an asset book size of more than Rs 25,000 crore. Unlike banks, NBFCs and HFCs do not have the repo window facility to borrow in times of need. RBI can also help by easing External Commercial Borrowing (ECB) norms with a higher limit for investment grade rated companies equivalent to sovereign rating upto maybe USD 1,500 million from the current uniform limit of USD 750 million for all NBFCs. Further, relaxation of end use norms of ECBs for HFCs will help facilitate credit flow to the entire housing finance sector. Currently end use is limited to affordable housing.

Pollution is a big threat

Pollution is becoming a disguised terrorist causing health problems and also affecting economic activities. One may remember, the ban of construction activities in Delhi and NCR region in November when air pollution had reached dangerous level. Banning construction seems to have become an annual ritual which in turn affects the nation economically apart from rendering many jobless for a temporary period. So, pollution control should become one of the highest priorities of the government and Budget should encourage “Green” activities. Considering environmental concerns, a provision should be introduced to treat the expenditure on creating “Green Belt” as fully allowable revenue expenditure & thus treat the same on par with pollution control equipment. Alternatively, the government can provide 100% depreciation for activities such as “creation of Green Belts.”

Make ULBs resourceful

Urbanisation has become a worldwide phenomenon and India is no exception to this development. In the coming years, more than half population is expected to live in cities and towns. Urbanisation cannot happen unless urban local bodies participate in the process wholeheartedly. This cannot happen unless and until ULBs are financially sound and are capable of undertaking big development projects independently. However, most of the ULBs in India are financially weak and after the introduction of GST the situation has deteriorated further. Therefore, the government should come out with a policy which provides for substantial transfer of GST revenue to these ULBs. It would be far better if ULBs are allowed to “piggyback” onto income tax. This follows the “generalized benefit principle”, where beneficiaries of city infrastructure & services pay for them. People see what their tax money is used for.

Bring down logistic costs

Improved and efficient infrastructure is vital for India’s economic growth and manufacturing competitiveness. According to a World Bank report, logistics costs for Indian Manufacturing firms  are comparatively higher than their global counterparts. India’s logistics cost at approximately 13% of GDP remains high compared to other countries like USA (around 8%). This renders Indian firms uncompetitive thus putting them at a disadvantage to their competitors. Therefore, development of freight corridors may help the faster movement of freight and that too at a lesser cost. Further, we need to shift from the point-to-point freight movement to a hub-and- spoke model of freight movement. This could be done through development of multimodal logistics parks (MMLPs) that would facilitate freight aggregation- disaggregation and multimodal freight movement.

Bring direct taxes further down

Further, we need to be competitive vis-a-vis other countries and for this to happen the government should further reduce the direct taxes. The statutory corporate tax rate had been brought down in the last three decades, from 45 per cent in 1991-92 to 22 per cent in 2019-20, which is really commendable and encouraging for the industry. It is to be noted that as per the latest OECD data, many countries in the world have a corporate tax rate of 15 per cent, such as Canada, Lithuania, Maldives, Mauritius, Oman and Serbia. Countries like Ireland, Andorra, Bulgaria, Paraguay and Hungary follow an even lesser rate of corporate taxes. Therefore, we need to move in that direction to remain competitive globally.

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