PM pushing ministers augurs well for Make-in-India
With around a third of the government’s tenure over, and private investment showing no signs of picking up—except for FDI which is booming thanks largely, but not solely, to the e-commerce/start-up boom—the government appears to be stepping up the tempo. By meeting his council of ministers every month, to review the progress on decisions taken by the Cabinet, prime minister Narendra Modi hopes to get some serious ground-level changes going—he has already asked for removing bureaucrats who don’t perform and expressed his annoyance with taxmen who are harassing taxpayers; the finance ministry will get a chance to highlight this, and other changes it is making, at a two-day investment summit it is organising next month for large foreign investors. A national investment grid is also being worked upon, to provide data on projects available in various states along with, for instance, details of land available—a West Bengal, for instance, is now talking of how it has a large land bank along with suitable investor-friendly policies.
Talk, however, is cheap, and finance minister Arun Jaitley’s third budget presents a golden chance to deliver on some of these promises. Start-up India was a success because the government promised investors a tax-free regime for the initial 3 years, no capital gains for investments of over a year in even unlisted companies and an easy exit route in case the promoters wanted out—the budget has to implement this. The prime minister’s talk on retrospective taxes being a thing of the past so that neither this nor future governments can use it means it has to be scrapped on February 29; nothing less will do, and existing cases cannot be brushed under the carpet for too long. With exports falling for 13 months in a row, the budget has to deliver on more sops to exporters including, most important, the commerce ministry’s old demand for scrapping MAT on SEZs—from 28% in FY11, the SEZ share of exports fell to 24.4% in FY15. The Justice Easwar committee has already made valuable suggestions on reducing TDS and on other important items—the committee chose to focus on issues that are the most litigated—and the budget needs to incorporate them. The finance minister would also do well to read the views of tax experts being brought out by the International Tax Research and Analysis Foundation (ITRAF). Mukesh Butani, for instance, has analysed the various corporate tax exemptions and concluded, rightly, that the government needs to be careful about what exemptions to remove since, those like accelerated depreciation, are big drivers of corporate investment—the POEM guidelines, as Butani points out, are an invitation to tax terror and are best put off by a few years. Accepting Indraneel Chaudhury’s suggestion to revert to taxing dividend in the hands of shareholders at a reduced rate of 10% instead of the 20% charged to companies today, would lower the effective corporate tax in India—today, companies add this tax to the corporation tax and this makes India’s taxes look even higher than they already are. More than the fiscal deficit numbers or increased government spending to try and make up for stagnant private investment, investors would be looking to see what policy measures the government announces including strategic sales—like the chief economic advisor, chances are investors are not narrowly focused on a single deficit number.