By Rajesh Mehta & Shanayaa S. Suneja
As steadily increasing poverty, ghast paucity of investments, skyrocketing unemployment rates, crumbling exports and crippling shrinkage of the middle-class plague the Indian economic landscape, all eyes are set at Budget 2022 as a beacon of hope for the revival of the economy. The real question on everyone’s mind is whether this budget too will follow the obnoxious trend of politics over economic gains and simply be a people-pleasing one or truly address the prevailing pain-points and propel growth. At a point in time when the world runs the risk of geopolitical wars within the next 3-6 months and an international economic collapse, there is even greater pressure on this budget to not just cater to our internal domestic issues but also be extensively well-planned. From the provision of funds to accelerate investments while not losing sight of fiscal-deficit objectives to achieving consumer confidence and avoiding grave macro-economic instability — the task at hand is nothing short of balancing on a tightrope.
Investments & Capital Expenditure
Capital expenditure of the central government witnessed an on-year increase of a whopping 31% in the past year, with a focus on 4 key infrastructural verticals namely roads, rail, ports and housing. This is in sync with the current bi-fold trend of manufacturing shift and infrastructural spending. It has been over a decade since the industry recorded the last capex growth phase, hence Government must continue to seize this opportunity for revival in the investment cycle. Besides the multiplier effect for the economy, the resultant employment generation also benefits the urban poor. The budget needs to halt the vicious cycle of unemployment to increase aggregate demand. Online skill building and mandatory apprentice programs can also be considered.
Manufacturing & MSME Sector
Viewing the positive performance of Government’s Production Linked Investment Scheme (PLI) in incentivising greater private capex, it may be in our best interests for the budget to also bring in MSME’s within the scheme’s ambit. Industry experts bring to light the business threats experienced by the MSME sector, especially Micro Enterprises, in terms of destabilisation of their supply chains and conversion of many accounts into Non- Performing Assets. The MSME sector must receive an influx of funds for restructuring, greater accessibility to government measures like Emergency Credit Line Guarantee Scheme and simplification of rules and regulations. A fair opportunity for MSMEs to realign their position in Indian economy and combat pandemic distress will catalyse the process of diversification of supply chains, help big businesses to meet their demands by looking inwards, increase exports and facilitate the overall growth of the manufacturing industry. Boosting our secondary sector also holds the promise of enhancing foreign integration, bringing in forex and instituting India as an integral participant of Global Value Chains.
Innovation, New-Age Technologies & Digital Transformation
The budget needs to continue providing incentives to Indian start-up ecosystem to sustain the current entrepreneurial momentum. Curtailment of compliance burden as well as rationalisation of legal frameworks by rethinking several mandatory approvals and enforcing structures to self-govern and self-certify will further improve our ease of doing business and give rise to a greater number of Unicorn Start-ups. Bringing in the gaming and digital transformation industry within the purview of the budget to incentivise investment in these new-age arenas, can scale-up and transform our business climate. New-Age Companies of Indian origin globally dominating sectors like Ed-tech beckon India to internationally capture E-Sports territories. R&D in cognitive science and space technology also needs to be encouraged, as part of the innovation initiative.
Consolidation of Tax
Revival of economic growth is impossible without undertaking comprehensive measures from the revenue side as well. With fiscal goals looming over our head, the rationalisation of direct taxes to move away from the complex-tax era and the consolidation of GST can prove to widen the tax base, enhance revenue receipt figures and allow the budget to provide some relief to the Corporate Sector. Enforcing a covid consumption cess on the ultra-rich may be a measure which Government shall consider.
Education, Healthcare & Agriculture
India is lagging behind not just developed economies but even its developing peers in terms of education and healthcare investment. These sectors deserve to receive long-awaited attention with greater allocation of public funds and digitalisation to upgrade infrastructure, improve efficiency and achieve capacity-building. A stronger impetus to transform India’s pharmaceutical sector into an innovator and manufacturer for the world is necessary. Tax benefits should be provided within the health-care industry to undertake R&D in domains of biotechnology and medicine. Higher level education also needs to be a necessary focus-point. Government’s last attempt to rationalise the agricultural sector failed because it didn’t take the stakeholders in confidence while implementing policies. Measures need to be taken to revamp the sector, boost Agri-tech industry and reinstate farmer confidence.
As the gap between income groups continues to exacerbate, precedence to execution over allocation in the budget is necessary for a faster and more inclusive economic recovery. After all, as the doomy third wave of the pandemic threatens our economy, we can only hope that Budget 2022 is the light that leads us out of this tunnel by biting the bullet and doing what is necessary of economic growth.
(The authors Rajesh Mehta is a leading consultant and columnist working on Market Entry, Innovation & Public Policy. Shanayaa Suneja is a researcher. Views expressed are their own and not necessarily that of FinancialExpress.com.)