By EN Dwaraknath
India is well on the path to becoming a $5-trillion economy by 2027, showcasing strong economic growth in the face of global uncertainty. With increasing instability on the back of an uncertain geopolitical environment globally, businesses are looking at suitable global markets that offer a market for their products, the ability to diversify their risk profiles by increasing their activity and presence, while being stable and dispute free at the same time.
The upcoming Union Budget offers India the opportunity to position itself as a global force to be reckoned with by building on the strong economic performance of the last decade. To do so, the government will need to consider some key measures to spur investments in manufacturing, increase innovation, provide a stable, dispute-free tax environment, and send a strong message of its intent to make the country carbon neutral by 2070.
Incentivising manufacturing
While the government launched its ‘Make in India’ initiative in 2014, the share of manufacturing in the gross domestic product (GDP) has remained in the range of 13–16%. The dip in investor confidence in China has provided India with an opportunity to build its credentials as the world’s manufacturing hub.
In addition to pushing through long-pending labour reforms, the government should consider extending the lower 15% corporate tax rates for new manufacturing units. This could be supplemented by considering weighted deductions for certain types of expenditures, employment-linked deductions or deductions for skill development. Additionally, facilitating low-cost debt by extending lower withholding tax rates for overseas borrowings could be beneficial. However, this will need to be balanced with the global move to achieve a minimum level of taxation of global enterprises through the Pillar 2 framework.
A boost for services
The Budget could also consider supporting the setup of global capability centres in India, helping it move up the value chain from providing mere offshore support services to becoming one of the true centres of excellence. In this regard, the government may re-consider introducing incentives which will be crucial for positioning India as a value driver in the global market.
However, this time around, the focus could be on specific new-age technologies like generative AI. With increasing rate of cybercrimes, Centre could consider providing weighted deductions or accelerated depreciation for businesses investing in cybersecurity infra, thereby ensuring data protection and fostering a secure digital environment for businesses to operate in.
(The author is Partner at Price Waterhouse & Co LLP)
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