While a timely and comprehensive stimulus package triggered the revival, India now looks forward to a bold, creative Budget that will catapult our economy back onto a rapid and sustainable growth trajectory.
India has started the new year on a promising note with the world’s biggest vaccination drive underway. It is now the turn for its pandemic battered economy to receive a booster dose to regain its growth momentum. Expectations are high with the Finance Minister promising a Budget “like never before”, beyond the fact that this will be the first “paperless” budget since independence. While the FM deserves credit for this “green” initiative, the Budget will need to deliver some bold and innovative solutions to unshackle growth, create jobs and boost demand. It is Budget 2021 which will set the template for a sustainable bounce-back, rekindling our dreams of a $5 trillion economy.
The FM will need to do a fine balancing act as even though the situation warrants “pump priming” the economy via increased Govt. spending, she can’t stray too far away from fiscal rectitude, to avoid a downgrading of sovereign ratings. While the Govt. must resort to borrowing – either from the RBI or through long tenor bonds floated internationally, it also needs to look out for other sources to finance this fiscal expansion, such as monetizing surplus assets like land or aggressively implementing its disinvestment plans. I expect the Union Budget to focus on the following broad objectives to stimulate growth and apply a healing touch to the pandemic inflicted wounds:
1. Thrust on infrastructure given the pronounced positive multiplier effect it has on employment and income, besides creating a demand for goods produced by MSMEs who were worst hit by the pandemic. It is important to accelerate the execution of the National Infrastructure Pipeline projects with funding from a dedicated Development Finance Institution or by floating low yield long term bonds overseas. Real estate is also critical given that it is the second largest employer in our economy. Extending the Credit Linked Subsidy Scheme for PM Awaas Yojana and tax holiday for affordable housing each by 1 year, GST rationalization, reduction in stamp duty and a hike in tax rebate on home loan interest rate will provide the much needed fillip to this sector.
2. Channelize Govt. spending towards the social sector with a special focus on healthcare and education. The Budget must allocate a minimum of 5% of GDP towards enhancing primary healthcare infrastructure to ensure universal and affordable healthcare. Besides funding Covid vaccination, the Ayushman Bharat scheme should be widened. The focus should be on increasing the number of hospital beds and doctors, more diagnostic labs and indigenous manufacturing of PPEs and critical medical equipment. Telemedicine should receive a boost and the National Digital Health Mission should be rolled out on priority. The Budget must also help expand digital education by ensuring high speed internet access, upskilling of teachers, smart classrooms, data protection and incentivizing ed-tech startups.
3. Shore up rural demand by ensuring a rise in farmers’ income. The budget should focus on upgrading Agri -infra such as cold chains, warehouses & irrigation as well as strengthening schemes like Kisan Credit Card and Crop Insurance. MGNREGA allocation should be maintained if not increased while PM KISAN scheme should beextended to cover tenants and landless farmers.
4. Boost disposable income for the middle class to leave them with surplus cash which will spur consumer demand. The Govt. should consider some tax relaxationslike 100% hike in the upper limit for deduction under Sec 80C, hike in the upper limit of tax exemptions for health insurance premium payment, increasing the standarddeduction or raising the no tax threshold.
5. Build a robust manufacturing ecosystem to realize Atmanirbhar Bharat. The recently announced PLI scheme must be speedily implemented and the Govt. should also clarify the granular details of exactly how this will work. This must be supplemented by investment linked tax incentives, tax breaks for R&D spend, a tariff structure that encourages import of raw materials over finished goods and land and labour law reforms.
6. Steer India on a green growth path by continuing to support the expansion of renewable energy capacity. I wish to see a roadmap for privatizing the Discoms as a means of restoring their operational and financial health to ease liquidity concerns across the RE value chain. The proposed amendments to the Electricity Act 2003 should also be implemented at the earliest to ensure a stable policy framework. The government must invest in building a robust transmission infrastructure, simplify land acquisition norms for renewable projects and further incentivize rooftop solar. The Govt. should incentivize R&D in emerging technologies such as storage and greenhydrogen. The govt. should consider exempting customs duty on import of Li-ion batteries to boost storage. Domestic manufacturing of solar power equipment should be supported by tax breaks, interest subvention on loans, duty exemptions for importing capital equipment and subsidy for R&D set up. The industry also needs clarity on Basic Customs Duty – it must not be increased for the period that will be required for the domestic manufacturing industry to mature, to ensure smooth execution of projects already bid out. The budget must also encourage clean mobility by fast tracking scrappage policy for automobiles and propel the Electric Vehicles market via tax concessions for producers, easy financing options for buyers, reducing GST on batteries to 5% and ramping up of charging infrastructure.
7. Galvanize Startups by relaxing and simplifying the compliance norms, broadening the ambit of ESOP tax exemption, laying down liberal IPO guidelines including overseas listing and incentivizing domestic capital participation. More startups in India will also contribute to employment generation.
8. Strengthen Digital India by increasing allocation for building a robust digital infrastructure right down to the grassroots level and ensuring digitization ineducation, healthcare and personal finance for all sections of the population. The PM WANI scheme for public WIFI hotspots must also be expanded. The Budget mustencourage research and innovation in new technologies like Artificial Intelligence, Machine Learning and Blockchain technology so that India is not left behind on thedigital highway.
India’s management of the pandemic has been quite efficient so far compared to many other nations, with a visionary Prime Minister leading from the front. While a timely and comprehensive stimulus package triggered the revival, India now looks forward to a bold, creative Budget that will catapult our economy back onto a rapid and sustainable growth trajectory.
Source: ET Energy