Budget FY22: Budgeting for atmanirbhar growth

January 30, 2021 6:00 AM

India needs a stimulus to provide digital connectivity to all—an essential need now like roti, kapda aur makaan—and bridge the gap between digital haves and have-nots

To boost demand and generate jobs, there is a need to increase government expenditure in productive sectors.To boost demand and generate jobs, there is a need to increase government expenditure in productive sectors.

By Dhanendra Kumar

Much to repair, much to restore, much to heal, much to build, and much to gain—US president Joe Biden’s words at his inaugural address sum up the challenges India’s finance minister Nirmala Sitharaman would have to tackle in her budget on February 1. In the aftermath of the Covid-19 havoc, India, fortunately, stands out (for a country of its size and population) as a shining star!

In the just released World Economic Outlook report, IMF has projected the Indian economy to bounce back strongly in the next fiscal year, with 11.5% growth—the world’s highest. India will be the only major economy to grow in double-digits next year. As per IMF, the Indian economy is estimated to contract by 9.6% in 2020, grow at 7.3% in 2021 and attain 11.5% in 2022. This may be compared with China’s growth of 2.3% in 2020, 8.1% in 2021 and 5.6% in 2022. IMF chief Kristalina Georgieva said, India “has taken very decisive action, very decisive steps to deal with the pandemic and to deal with the economic consequences”.

So, what are the immediate challenges? First, sharply scale up the healthcare spend, fix health infrastructure, and vaccinate the entire population. The sooner this is done, the better it would be for regaining normalcy, mobility and accelerating economic growth. India’s spend on healthcare is among the world’s lowest, just over 1%. In the 2020 budget, this was raised to 2%. It is a matter of pride that India has come up with its own vaccine, and in this era of global hoarding, it can take care of its people; in fact, distribute it to its neighbours as well. A coordinated and time-bound schedule, where district collectors may play a pivotal role, can be evolved in collaboration with the states and the panchayat system. In this gargantuan task, CSR and voluntary efforts can be roped in too.

Our corporates have opened their hearts during emergencies, and this is a real one. As per the latest Oxfam report, our top-100 billionaires’ wealth increased during pandemic by Rs 1.3 trillion—now is their Bhamashah moment.

Today, India is the world’s third-largest start-up ecosystem (after the US and China) with around 50,000 start-ups & 42 unicorns, valued at $170 billion and generating 8 lakh jobs. There is a need for doubling them, and this is indeed the Brisbane moment for our young entrepreneurs across Bharat, with the government playing an enabler’s role. In this context, Sunil Jain’s interview of Nithin Kamath, founder, Zerodha (bit.ly/3cjIhAC), one of the few unicorns without any external funding, is quite illuminating. As stressed therein, start-ups in India do not have to be ‘cut-paste copies of Western businesses’ but embedded in India’s needs and ethos, as the Indian audience is completely different. They succeed by being in the right place and at the right time. It is also a pity that most of the capital—almost 85%—invested therein has come from abroad. Foreign investors encourage them to flip, to register overseas, and half of them are domiciled offshore. As Kamath stressed ‘ideally, we should try to keep our wealth here’. Such Indian start-ups also mentor and help other local start-ups—in this case, Smallcase, a thematic investing platform, Streak, a back-testing trading platform for non-programmers, and LearnApp that has built an educational platform.

The government should play the role of an enabler, building the supportive regulatory ecosystem and facilitative tax structure. As emphasised by industries minister Piyush Goyal at TieCon (cutt.ly/Gj5hLT9), ‘Indian businesses should dedicate a portion of wealth to fund domestic start-ups. They could also mentor and help them overcome initial difficulties being faced by budding entrepreneurs’. Some of our enlightened corporate leaders, like Sanjiv Mehta of HUL, are known to depute their experienced professionals on secondment to help such start-ups. The government should also consider allowing domestic pension and insurance funds, having a cumulative corpus of over Rs 1.5 lakh crores, to invest in such start-ups for giving them access to stable and long-term domestic capital.

As highlighted in a recent article (bit.ly/2YzEYx7), Indian start-ups have facilitated us to sail through the pandemic, using digital technologies—for working from home, online shopping, teleconsultation and telemedicine, tele-education, entertainment, OTT, delivery of services, etc. A stimulus to provide digital connectivity to all—an essential need now like roti, kapda aur makaan—and bridge the gap between digital haves and have-nots while making it affordable is needed.

Expansion of digital connectivity, both on the supply- and the demand-side, may lead to enhanced productivity, increased efficiencies, and cleaner environment with less travel. A digital boost may also include suitable tax tweaks, like levy of tax on ESOP only at the time of sale of shares, 10% tax on long-term capital gain on sale of shares by resident investors (at par with non-resident investors) and exempting all DPIIT recognised start-ups from MAT.

To boost demand and generate jobs, there is a need to increase government expenditure in productive sectors. This may require a multipronged strategy, building infrastructure with quicker outcomes together with tech-infusion, in roads and highways (newer techniques to speed up), irrigation (overhead solar panels for additional power generation and saving evaporation losses) and micro-irrigation (efficient soil-specific usage with AI), agriculture (reducing input costs and boost productivity with a chain of agri-tech), housing (pre-fab and quicker rollout, housing for all by 2022), telecom (optic fiber, copper wires, poles, transformers etc.), public health, hygiene, sanitation and drinking water.

The government may also consider easing FDI for infra sectors and job-oriented projects. In manufacturing, emphasis must be on the fuller and efficient utilisation of already installed capacities for quicker and competitive outcomes with new investments in R&D and technology infusion. Higher allocations for agriculture may be required for soil health and post-harvest management across the value chain, AI-based agri-tech solutions, incentivising, facilitating crop diversification, and food processing.

We may identify and prioritise low-hanging fruits, like completing stalled projects and prioritising those with a quicker spin-off. For example, in housing—one of the biggest employment generators—Delhi-NCR alone has 1.9 lakh stuck housing units worth Rs 1.2 lakh crore. Across seven major cities, 5 lakh housing units worth Rs 4 lakh crore are stuck. As per government report, there are 450 infrastructure projects, each worth Rs 150 crore or more hit by cost over-runs, totalling over Rs 4.28 lakh crore, a tight monitoring and quicker completion can bring benefits quickly. In a separate but related context, there is a need to also unlock value quickly in blocked stressed assets under IBC. Advocating quicker pre-pack insolvency, IBC Chairman Sahoo asserted “Stock markets trade in microseconds, insolvency transactions should happen in days.” Overall, we should have the best value for our buck, and at the soonest.

This is India’s moment in history, a time to go for growth, faster growth, and the time to shine, starting now.

The author is Former chairman, CCI and ED, World Bank. Views are personal

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