Budget 2018: The economy is standing at a juncture where it is somewhat on a cusp. It could be that the leap forward awaits us at the next step which will help us to throw off our constraints and move towards a sustained high growth scenario. Or it could be the start of the long upward trudge of slow improvement in growth with high growth pushed back for another day. An effective budget could be the final touch on an ongoing effort to revive, revitalize and launch the Indian economy into a higher growth trajectory. Budget 2018 is the focus of a lot of hope, anticipation, and anxiety all at the same time. What is it that the corporate sector in general and the various sectors in particular anticipate or wish for in this coming budget? It is a question that can never be fully answered just as a budget can never hope to provide full satisfaction to all players in the economy. However, at the macro and micro levels, certain points come to mind.
Accelerate recapitalisation of banks and lowering of interest rates
Though government investment and financing has been robust, the other engine of growth that is the private sector has failed to take off. One of the biggest factors constraining the private sector in capital formation has been that their assets are stressed and they are saddled with substantial levels of loans. The are not really in a position to invest. At the same time, the NPA situation is also hampering the Banks from lending. Policy changes are already being pushed to ensure that companies that can be revived are revived and those that can’t are allowed to fail. Budget 2018 can accelerate the recapitalization of banks and should consider sale of many large number of public sector banks.
Second, by keeping the budget deficit low, the government can ensure lowering of the interest rates to incentivise investment. Banks need to pass on the reduction in interest rates, already indicated to them by RBI, to borrowers.
Third, income tax rates need to be cut or kept low leaving more disposable income in the hands of consumers. Encouraging demand-led growth is key to sectoral as well as national industrial revival. The corporate sector is looking for a cut in corporate tax in Budget 2018 as well as individual income tax, especially given the complications brought forth by the GST regime. Greater clarity and calibration of the GST regime remains a prime demand separately.
Measures to attract inflow of foreign capital
Finally, measures to attract and ease the inflow of foreign capital and investment are eagerly sought in Budget 2018. So is a much greater opening up and reduction of discretion and corruption to make India a viable and lucrative destination for investment to flow into.
These issues are common to most sectors of the corporate/industrial economy today. Many specifics can be cited to illustrate the general.
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By way of illustration, the infrastructure sector anticipates a far greater allocation and stress on various infrastructure projects. However, they also need a quicker and responsive regime of payment clearance for various projects already underway. Huge claims for payments in various infrastructure projects are lying unpaid with the government and the sector is looking for the release of these. Speedier disposal of disputes in arbitrations or otherwise is also sought in Budget 2018.
Incentives for automobile sector, speedy registration of land transactions
The automobile sector is looking for suitable incentives in Budget 2018 for the production of vehicles using alternate fuels, and especially a tax incentive for electric cars to meet the goals set by the government. Housing is also a key area of interest for the government. In order for a growth revival in the sector, a reduction in interest rates is imperative as is the easing of getting building permissions, buying and selling and transfer of land, speedy registration of land transactions, and of construction approvals and permissions. Many of these fall within the purview of State governments, who need to be given policy guidelines and a push from the Central Government to carry these out. Similarly, FMCG sector wants attention focused on issues of GST and ease of interstate transportation.
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But perhaps the sector that needs most attention in Budget 2018 is the agriculture sector. And interestingly, corporate India agrees.
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Value added activities in agriculture sector need economic push
The Agriculture sector needs a total revamp. Economic incentives and new policies towards better transportation and cold storage facilities, the permissibility of sale across state borders, development of markets in produce so that intermediaries’ role goes down are urgently needed. Value-added activities relating to agricultural produce need to be given an economic push. National irrigation network plan needs to be put into action with utmost speed. Furthermore, water should be properly priced curbing wastage and therefore a reduction in overall usage but resulting in better productivity. Above all, effective agricultural insurance policy of crops for farmers, especially small farmers is urgently needed to bring back the sector on its feet.
Captains of the industry today also want the government to give a far greater push to the social sector in Budget 2018, which the Niti Ayog has already delineated as a key thrust area. Greater allocation, particularly to health, education and skill development, are key to increasing productivity in the economy as well as the availability of skill sets to the industry. Not to mention a healthier demand curve. But the much-awaited rise in demand needs lower income tax rates, just as a lower interest rate is awaited to re-attract locked up money and assets and bring them back into the economy.
Sonali Basu Parekh is Partner, Parekh & Co, Advocates and Attorneys, New Delhi. She is admitted to practice in India and New York.