The clear mandate to the NDA government led by Prime Minister Narendra Modi for the second consecutive term allows for stability and continuity in the reform process. Today, the government stands empowered to undertake long-term structural reforms. In his first address after the election results, Modi underlined the importance of inclusivity in the development agenda of the nation and reiterated the mantra of “sabka saath, sabka vikas” — with additional emphasis on “sabka vishwas”.
All eyes are now fixed on the Union Budget 2019-20. This will be the first big opportunity for the government to showcase its ability to deliver, and just like every other section of society, we from the industry also have significant expectations from this Budget.
Macro headwinds remain due to a host of domestic and global risk factors. GDP growth is slowing down, the unemployment rate is high, the financial sector is seeing a fresh crisis and both investment and consumption demand are muted. Globally, trade tensions are showing no signs of a respite and geopolitical tensions continue to spook markets. So, what should the government focus on, in the upcoming Budget?
While there is room for the RBI to cut the repo rate by another 100 basis points and ensure transmission of the interest rate reductions to the actual borrowers by banks, to boost investments, the government can usher in a new taxation framework linking new investment to job creation, which will act as a catalyst. Under this scheme, companies making investments which generate employment for 250 to 499 workers, should be allowed to avail a rebate of 2 per cent in corporate tax for the next five years, beginning from the date of the commissioning of the plant. Entities generating 500 to 749 jobs may be allowed a rebate of 3 per cent in corporate tax, while those creating 750-999 jobs, should be allowed a 4 per cent reduction. Companies generating 1,000 or more jobs can be allowed to avail 5 per cent rebate in tax payment — and pay corporate tax at the rate of 25 per cent. This will rejuvenate the investment scenario by rewarding employment-generating companies and help the government in achieving both its immediate objectives — reviving investment and creating jobs.
Revitalising the agriculture sector should also be a priority. To enhance yields and mitigate risks arising from an adverse monsoon, we must step up investments in irrigation (including in micro irrigation). There is also the need to strengthen the agriculture supply chains to reduce wastage and ensure better prices for farmers. Farmgate and near-farmgate storage (of more than 1,000 MT) should be developed on priority under the Rashtriya Krishi Vikas Yojana (RKVY) to enable small producers to hold on the produce till market prices are remunerative enough to sell. A plan for a national warehouse grid along highways should also be launched. Additionally, we need to plan for major improvements in the agro-processing industry.
Providing a fillip to the infrastructure sector is another important step. The government must announce major projects in sectors such as roads and highways, sub-urban metros and airports. The multiplier effects on the economy through generation of demand and new jobs from large-scale infrastructure projects will be huge. As the infrastructure sector gets going, demand for steel, cement, power, commercial vehicles, capital goods will all go up.
Re-energising our exports and supporting them is also vital. The country needs an institutional mechanism for global market intelligence to regularly conduct market studies, sector specific studies to understand the dynamics of global trade, barriers to trade, market-entry opportunities, etc. This may also include mapping specific markets to specific MSME clusters. Detailed information should be made available to exporters through an export information portal. Suitable allocation in the Union Budget may be made for this market intelligence cell. The government must also support marketing campaigns in foreign markets for building “Brand India” and promoting made-in-India products.
Along with these steps, other supporting measures are also required. For stimulating household consumption and savings, a major direct tax announcement in the Interim Budget 2019-20 related to exemption of income tax for assessees with an annual income of up to Rs 5 lakh. This was a positive step and should be continued. The income tax slabs for individuals needs to be revised upwards. The highest tax rate of 30 per cent should be applicable only to those whose incomes are above Rs 20 lakh. At the same time, the investment limits under Sec 80C, Sec 80D and deduction for interest paid on housing loan under Sec 24, etc. should be enhanced. These measures would leave more disposable income with households and thus boost overall consumption.
In the interim Budget 2019-20, the target set for disinvestment was Rs 90,000 crore. This must be raised in the full budget to at least Rs 1.5 lakh crore. A slowing economy may not yield revenues at the rate expected on the tax side, but we can look at raising the bar on disinvestment. There is already a list of CPSEs and their idle assets — land, industrial units — that must be monetised quickly.
Last but not least, incentivising employment-intensive sectors will also help in creating more jobs. Special export zones for sectors like textiles, leather, gems and jewellery, footwear, toys must be announced with benefits like subsidised land, duty free imports and tax holidays. The government may also create plug and play units for sectors like garments where all the facilities are provided on minimal rent basis to young entrepreneurs for an initial three to five years.
The writer is President, FICCI