The year 2020 will not be easily forgotten as the year that reset all aspects of our lives. The pandemic affected the most important parameters of existence, namely healthcare and the economy. The GDP contracted by 15.7% during April-September 2020, the worst in recent history.
In this context, we are all looking forward to the Union Budget 2021-22 to aid the recovery on one hand, while ensuring macroeconomic stability on the other. Hon’ble Mrs Nirmala Sitharaman, Minister of Finance and Corporate Affairs, has noted that this would be a Budget not seen in the last 100 years and has urged industry to provide ideas and inputs.
The Government has introduced timely interventions through relief packages addressed at vulnerable sections of society as well as at industry, which have kept economic activities moving. Some notable policies have been announced especially in the areas of agriculture, MSMEs, infrastructure and power, labour laws, and production linked incentives, among others. These initiatives have resulted in gradual recovery of the Indian economy.
This can be seen in both manufacturing as well as in the services sector. Besides, industrial recovery has led to an improved order book situation and the resumption of economic activity has led to higher GST collections. Similarly, a rise in freight traffic and growth in fuel demand has signalled a rise in economic activity. The worst seems to be over and green shoots of recovery are emerging.
CII suggests that the budget proposals focus on growth, even if it means that fiscal consolidation is postponed for another year, with the caveat that the Government expenditure is increased in moderation and targeted towards areas that have a high multiplier, so that the additional borrowing can pay for itself through higher growth over the medium term.
CII recommendations emphasise upon the key aspects of – fiscal management for growth and debt sustainability, reviving the demand cycle, making Indian financial sector future ready, exports / trade policy, employment and livelihood, innovation to improve productivity and competitiveness, amongst others.
Amongst other concerns at hand, there needs to be a rise in consumption, private investments and exports to bring about significant change. The re-emergence of inflation, which has spiked beyond RBI’s comfort level, is a macro-economic concern.
On the tax side, CII’s pre-Budget recommendations have stressed clarity in law, simplification of procedures, reduction of litigation and facilitating business transitions. Over last few years, it is seen that in order to enhance the financial strength / soundness of banks, and for the stability of the financial sector, RBI has mandated that banks should augment their NPA provisioning. Recently, considering the impact of Covid-19 pandemic on the businesses and financial institutions in India, RBI has enhanced provisioning norms to be consistent with the globally coordinated action committed by the Basel Committee on Banking Supervision. The limit prescribed under section 36(1)(viia)(a) for provision for bad and doubtful debts for Indian Banks should be increased from the existing limit of 8.5% to 15%.
Banks operating in India facilitate foreign investment by Foreign Portfolio Investments (FPIs) by acting as custodians (cash and securities) for the FPIs investing in India. Specific clarification should be provided so that banking and broking service providers are not held as representative assessees of their clients.
For employment generation, a key target today, Section 80JJAA provides for a cap of INR 25,000 per month on the emoluments paid to ‘additional employee’ to be eligible for deduction. The threshold of INR 25,000 is too low given the current scenario in India as well as globally. Amendment could be made to enhance the monthly remuneration limit from current level of INR 25,000 to at least INR 50,000.
An optimum budget addressing the major concerns of the economy at this unprecedented juncture would go a long way in bringing growth back to the economy and moving a step closer towards a taxpayer friendly regime.
The article by Mr Chandrajit Banerjee, Director General, CII first appeared in the December 2020 issue of CII Policy Watch.