Finance Minister Nirmala Sitharaman held her first pre-Budget meeting with top industrialists on Monday amid expectations of the government presenting “growth-oriented Budget to boost economic activity recovering from effects of Covid.”
The meetings with industry chambers will be followed by two-day consultations with stakeholders of financial sector and capital markets. Aggressive disinvestment of state-owned companies, government reducing its stake in most public sector banks (PSBs) below 50 per cent, managing the fiscal deficit over a three-year period were among the suggestion presented by Confederation of Indian Industry (CII) to the Finance Ministry. It suggested measures to reduce tax litigation and pitched for the need to extend the Vivad se Vishwas tax dispute resolution scheme till December 31, 2021.
“CII has suggested that the Budget proposals should focus on growth, and alongside look at fiscal management from a 3-year perspective. Aggressive disinvestment and monetisation of assets can augment government revenues at a time when tax revenues have fallen sharply,” said Uday Kotak, president, CII. The Budget proposals should also address two critical areas of boosting private investments and providing support for employment generation. Stressing the need for financial sector reforms, Kotak said the government should bring down its stake in PSBs to below 50 per cent via the market route over the next 12 months, except for 3-4 large PSBs such as State Bank of India, Bank of Baroda and Union Bank.
Industry chambers CII and Ficci also suggested the need to step up expenditure on healthcare and infrastructure sectors significantly for a sustainable growth trajectory.
The Union Budget 2021-22, which will be presented on February 1, will provide clarity on the government’s fiscal position as well as the policy approach to provide an impetus to the economy that has been in technical recession and recorded the worst contraction in April-June quarter post the economic lockdown. Contraction has since slowed down with expectations a positive growth in fourth quarter. Along with Finance Minister, Finance Secretary Ajay Bhushan Pandey, Department of Economic Affairs Secretary Tarun Bajaj, Chief Economic Advisor Krishnamurthy Subramanian and other senior officials attended the meeting via a videoconference.
Sources said there were lot of suggestions for stepping up infrastructure investment significantly as it has a massive multiplier effect. Funding for this could be facilitated through a Development Finance Institution (DFI). CII suggested that DFIs could be established on the lines of KfW Germany, Brazil Development Bank, and Korea Development Bank, and this could be achieved by infusing equity in NABARD for financing agriculture and rural sector, SIDBI for financing MSMEs and IIFCL for financing infrastructure.
Ficci suggested the Budget must prioritise growth-oriented measures and fiscal considerations should be secondary, as the need for further fiscal stimulus remains. It suggested a scheme like MGNREGA for urban poor, higher interest subvention on housing loans, and utilising a portion of foreign exchange reserves ($15 or $20 billion) for setting up a fund for lending subsidised lending to Indian industry at around 6 per cent for new projects.
It said the government can raise revenues by pledging PSU shares to the RBI, by issuing long-term pandemic bonds and through aggressive divestment and monetisation of non-core state-owned assets.
Suggesting need for convergence in GST rates, Ficci said: “… The government should consider converging the existing band of GST rates to three, in line with international standards. This will help resolve interpretation issues, reduce complexity and probability of disputes.”
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