With a week to go before the presentation of the Union Budget, considerable anticipation has started building up among economic players about what would be in store for them on the Budget day. Hence, at a time when the economy is showing distinct signs of recovery and there is a growing sense of optimism that the Covid-19 wave will not continue beyond the initial months of the current year, there are hopes and expectations that the Finance Minister would announce a growth-oriented Budget which would bolster investor confidence and uplift the economy in the short and medium term.
The Government has already taken considerable steps to strengthen the ongoing recovery and stimulate economic growth. Measures such as the Production Linked Incentive (PLI) scheme for boosting domestic manufacturing and exports across various sectors of the economy have attracted notable investments. The National Infrastructure Pipeline, DFI, PM Gati Shakti, and the National Monetization Pipeline underscore the focus on holistic infrastructure development. Further, credit access to small enterprises, new public procurement guidelines and support for the vulnerable sections would contribute to inclusive growth.
But while the macro-economic numbers continue to improve, there are certain areas- such as subdued private consumption, the spike in inflation, the proposed hike in policy rates by US Fed, among others- which cause concern. And above all, the threat of the Omicron variant of coronavirus could result in some loss of momentum in the economy.
Under the circumstances, CII has put forward the following recommendations which would take the economy to the trajectory of high and inclusive growth.
To begin with, reviving investment demand, which is a major growth propeller, should be among the top priorities of the Budget. This would not only help sustain the recovery but also make it more durable by crowding in private investment over time. Ensuring adequate financing avenues for the infrastructure sector through measures such as replacing bank guarantees with surety bonds and developing the municipal bond market so that urban local bodies can raise funds for investing in infrastructure, could be given due consideration.
Another way to boost investment and growth is to bring manufacturing to the center-stage of economic activity. A strong manufacturing sector has the potential to serve as a powerhouse for the country’s growth engines while promoting employment opportunities. To boost manufacturing, the Government should improve the ease and reduce the cost of doing business by addressing concerns such as land acquisition, labour laws, high cost of credit and power, among others.
Besides, issues such as reducing the trust deficit between the Government and the tax-payer, a predictable and stable regulatory environment at the central and state levels, reducing tax litigation and enforcing contracts, and addressing delayed payments, etc would play a pivotal role to encourage private investors, both domestic and foreign, to plan investments in the country.
There is also a need to soften the impact of a spurt in input prices to small and medium businesses, which are more vulnerable to inflationary shocks than large corporations. For this it is suggested that the Government should forge index-based contracts with such entities, instead of fixed-price ones when it comes to public procurement of goods from SMEs. Besides, the Emergency Credit Line Guarantee Scheme (ECLGS), which ends on March 31, 2022, could be further extended especially for the contact-based services such as hospitality, tourism, leisure and others as they have been the worst affected by Covid restrictions.
Further, to ensure that the growth is holistic and attuned to the changing times, the policy makers should not lose focus of the need to embrace technology & innovation and sustainability as the bedrock of the higher growth trajectory. In this regard, setting up of a Technology Fund on a PPP basis with matching contributions from the private and public sectors could be explored.
Last but not the least, with the risk of the omicron variant looming large, it is critical to increase the coverage of booster doses of the COVID vaccines with an adequate provisioning in the budget for continued strengthening of our surveillance, testing, vaccine research, therapeutics and health care infrastructure.