Looking to push private sector investment and job creation in the economy, the government is expected to announce incentives including tax sops for companies that make capital investments in a time-bound manner and generate jobs.
A source told The Indian Express that the government recognises the need for private sector investment and job creation, and there is a likelihood that it may announce tax sops for capital investments.
“While the government is expected to announce a series of measures to push private investment in the forthcoming Budget, it can announce tax breaks for companies that make capital investment of a certain amount and are able to implement and commission it,” the source said. This will incentivise the industry and with capex coming in, that in itself will kick in demand, the source said.
Route to spur growth, boost pvt investment
The twin challenges for Union Finance Minister Nirmala Sitharaman as she presents her maiden Budget two days from now are to spur growth and create more jobs. The government may be fiscally constrained to spend more, but can enthuse companies to invest more by offering tax incentives. Private investment has remained depressed for over five years now, and a strategy linking tax incentives to investment and jobs may work.
Reserve Bank of India data show that while the outstanding credit of scheduled commercial banks to the industry grew at a compounded annual growth rate of 2.8 per cent over the last five years from Rs 25.1 lakh crore in April 2014 to Rs 28.3 lakh crore in April 2019, the gross bank credit of scheduled commercial banks in the same period expanded by 8.5 per cent.
A closer look at the bank credit outstanding to the industry shows that the outstanding credit for micro and small and medium enterprises over the five-year period has expanded marginally from Rs 3.56 lakh crore in April 2014 to Rs 3.66 lakh crore in April 2019, that for medium scale industries fell from Rs 1.25 lakh crore to Rs 1.06 lakh crore over the same period. So, the growth in overall industry credit outstanding is largely on account of additional credit flows to large scale industries.
Opinion | The budget’s dilemma
Fund managers and bankers feel that while incentives on investments made may work, the government also needs to restore the trust with corporates.
A senior official with a leading financial services firm said that confidence within the industry and positive conversation are key at this point of time.
“While the required confidence to kickstart investments is missing, it needs to come in now,” the official said. “As an industrialist when you make investment, you take the risk of debt and invest your own equity too. I am not sure how many corporates want to do it as of now. Positive conversation has to come in to boost the confidence and build trust,” the official said.
Market experts say such a move is much needed as the country is missing out on capitalising its demographic dividend that was much talked about five to ten years ago. A market expert said that a young Indian population and demographic dividend was one of the key ingredients that overseas investors looked at when they pumped in money, but that opportunity is being lost. “While a young population provides a large consuming market, 8-10 years down the line, all that population is now looking at the job market and not getting it,” the expert said.