Investors hope the budget will strike the right notes to revive demand and keep a firm focus on fiscal prudence.
GoI should firmly adhere to the path of fiscal consolidation. This is eminently possible as the tax revenue is running well ahead of projections. The fiscal consolidation roadmap should be indicated for which the practice of providing the anticipated fiscal deficit numbers for the next two years after the budget year should be revived. Revenue expenditure should be rationalised wherever possible, especially the mounting bills from food and fertiliser subsidies. Various welfare schemes should be rightsized without impacting the vulnerable. Proposals to curtail non-productive expenditure that can be implemented immediately should be announced.
Second, policies to trigger an upturn in the investment cycle should be put in place. GoI should continue to accord priority to capex, especially in infrastructure. Recent rise in capex has led to improved quality of expenditure by the Centre, with a decline in the revenue expenditure to capital outlay ratio. But state capex continues to falter.
To encourage states to undertake capex, the 1 lakh crore of interest free loans scheme for state capex should be continued. Capex in rural areas, especially in infra, would also create employment opportunities and augment demand.
Measures to boost disposable incomes of households, critical for reviving consumer demand, must be taken. The ravages caused by the pandemic together with high inflation has dented households’ spending ability and requires a dose of incentives. These could be in the form of rationalisation of income tax slabs and rates for individuals at the lower end. A lower effective tax rate will put more money in the pockets of consumers and increase consumption.
The challenge of providing well-paid jobs can be addressed through a budgetary push to labour intensive manufacturing. Faster and time-bound clearances, contract enforcement, alternate dispute redressal mechanism and a genuine single-window system are called for. Across-ministry Compliance Commission that could look at rationalisation, digitisation and decriminalisation of India’s regulations — 65,000-plus compliance requirements and 6,500-plus filings —should be announced. No arrests or detention should take place in civil cases unless criminalisation in business has been proved.
Ease of doing business is also about providing a smooth exit for leaving companies. In her last budget, the finance minister had announced a Centre for Processing Accelerated Corporate Exit (CPACE) to reduce the winding up process to six months. Its implementation should be expedited.
For India to emerge as a manufacturing hub and to promote exports, its tariff structure should be rationalised. A graded roadmap may be strategized to shift import duty slabs to a competitive level over three years. This would entail lowest or nil slab for inputs or raw materials, 2. 5-5% for intermediates and final products in the standard slab, with only few products exempted. This will help Indian industry to integrate into the global value chain while becoming competitive.
All export products as well as export-oriented units (EOU) and special economic zones (SEZ) should be covered under the Refund of Duties and Taxes on Exported Products (RoDTEP) scheme.
The sunset date for commencing manufacture under Section 115BAB of the Income-tax Act, which allows domestic manufacturing enterprises the opportunity to pay taxes at a rate of 15%, should be extended from March 31, 2024 to March 31, 2025. This would encourage more investment in manufacturing and exports.
A stronger sustainability thrust should be high on the agenda. Actionable recommendations such as announcing a production-linked incentive (PLI) for electrolysers, a specialised Development Finance Institution (DFI) to fund the energy transition, and other climate change mitigation can accelerate the transition towards a green economy. GoI should also set up a fund for extending financial assistance to MSMEs on liberal terms and at competitive rates for adopting clean technologies.
In view of concerns over rising Covid cases, the budget should step up allocation for revamping healthcare infrastructure. India’s healthcare spending at 1. 28% of GDP remains abysmally low. It should be raised to 2. 5-3% by 2025. Health sector-specific development finance should be established to increase access for small hospitals in tier-2 and tier-3 cities.
A budget that provides the right mix of feel-good and austerity is what is needed.
The article was first published in The Economic Times, 9 January 2023