Budget should have nuance and bold moves An opportunity to adopt taxation measures to boost consumption and revitalize growth
The overwhelming electoral mandate given to Prime Minister Modi provides the government with an unprecedented opportunity to frame a budget that will take the country to the next level of growth, while addressing the concerns of the poor and the underprivileged. Given the global scenario and the economy’s financial metrics, the room for fiscal maneuverability may be limited; hence, the forthcoming budget will need to combine a nuanced approach with bold policy-making to provide a boost to employment and economic growth. Key focus areas include the following: A basic issue animating national discourse has been the need to revive agriculture and to stem distress in the rural economy, which contributes to only 16 per cent of the economy while supporting half the population. The PM Kisan Samman Nidhi, which is a paradigm-shifting direct income transfer scheme, promises a Rs 75, 000-crore package of cash transfers to small farmers, with each farmer receiving Rs 6,000 a year. This measure will go some distance towards alleviating distress.
The government must initiate a series of big-ticket measures to improve farmers’ access to consumer markets, enable them to claim a larger share of the final price at the point of sale and create seamless logistics and storage infrastructure from the farm gate to the market. This is an area where the private sector can play a productive role.
The country’s digital economy is poised to reach a size of $1 trillion by 2025, comprising 23 per cent of the Indian GDP. The impending fourth industrial revolution, particularly involving the potent alliance of technologies and solutions such as artificial intelligence, Big Data and Internet of Things (IOT), is expected to catalyze a stream of innovation across the country impacting every sector and touching the lives of every Indian, particularly given the fact that nearly 650 million Indians now possess mobiles and that more than 800 million people are expected to possess smart phones by the year 2022.
This ubiquity of communications and connections makes a case for building on one of the successes of the earlier tenure of Prime Minister Modi, the government’s direct benefits transfer (DBT) schemes.
These included DBT in Public Distribution System (PDS) and in LPG subsidy transfers. The budget should provide outlays to launch the second big wave of governance reforms to include direct services transfer [DST], whereby public services commonly availed by the citizen are directly channelized from the government to her.
It is important to provide resources to improve transportation linkages and create logistics facilities. These will provide a significant booster to the growth of the economy. Further big ticket reforms should include improving access to long-term finance for infrastructure.
One of the government’s most successful, game-changing initiatives has been the monetization of mature highway assets by the NHAI to provide resources for creation of fresh capacity in the roads sector. Following the success of the first round of asset recycling, more action should be pursued on this front. This initiative should be replicated across other infrastructure sectors and also by the state governments to bridge the resource gap for creation of new infrastructure. It would be useful if an asset recycling policy and guidelines are put forth by the government.
Given the compelling national need to induct private capital for building infrastructure, a key focus area would be to revisit and refresh the models of Public Private Partnership (PPP) that utilized so far.
The Vijay Kelkar committee had suggested some key reforms in the PPP domain and the creation of a next-generation PPP policy and framework that is robust, durable and fair. Infra augmentation also requires resolution of the issues confronting the banking and financial services sector. The time has come for a clear roadmap for banking sector reform as well as the consolidation of the public sector banks. The MSME sector, which accounts for 29 per cent of GDP, is a major engine of growth for the Indian economy. The sector will benefit from measures for fostering innovation, reducing regulatory hurdles, increasing investment in new technologies and promoting exports. The deployment of new financial instruments to reinvigorate MSMEs would enhance the strength of this sector that provides employment to120 million persons.
Since India is a consumption economy, a package of fiscal measures to liberate the energies of the economy will be valuable; particularly to counter the recent downtrends in the growth of product sales ranging from fast-moving consumer goods to vehicles. Measures to ease the direct tax burden on middle India, along with bringing a larger proportion of the population into the tax net, will confer the twin advantages of incentivizing domestic demand while also enhancing the inflow of direct tax revenues.
The full budget in July should be used as an opportunity to adopt much needed taxation measures that will boost consumption and revitalize economic growth.
We are at a spot in India’s history where the confluence of an overwhelming electoral mandate, the will of the Prime Minister to refresh some of the economic models and to dismantle policy barriers to growth, and the potent new tools provided by the widespread permeation of connectivity can accelerate economic growth. This year’s budget is a special opportunity to move forward with strong measures to accelerate growth and employment.