Economy is looking up with India’s GDP growth inclined to perform better in 2014-15 than what it was a year ago. It is expected to grow at revised estimate of about 7.4% as against 6.9 % last year and even lower degrees in the last couple of years. Inflation – which had been a persistent worry has moved decisively on a southward direction and RBI’s persistent monitoring is paying dividends – albeit slowly.
Our current account position which was fraught as a dominant risk factor until last year, has been suppressed to a very large extent – with confidence. Global oil prices have softened considerably and it has helped India to manage its POL deficit very well. Though of course the coming year is going to be challenging.Foreign investment – both portfolio as well under FDI segment – too has seen positive inflows, which is helping the external sector to face issues confidently.
Government’s progressive announcements during the past nine months of its rule have boosted the business confidence. A number of initiatives to boost the economic growth have been taken during this period, including the budget for 2014-15 presented in July last year. Results in terms of investments and infrastructural development may become visible in the next 12 to 18 months time. The budget for 2015-16 to be presented on Feb 28, being the first full fledged budget of the NDA government, has aroused a lot of expectations and hopes. This budget therefore will prove to be an acid test for the PM and his government.
BUDGET 2015-16
Governance is the key to all success. India is excessively administered and poorly governed. The theme of Budget should focus on effective monitoring and plugging financial and administrative leakages – thereby making Good Governance a practical tool to solve the various issues confronting the economy.
The confidence building measures (CBM) have to be continued to boost the demand situation in the economy. It is important to impart momentum to the capex cycle. Govt’s move to lower the threshold limit of investment allowance is welcome. However the period which is currently 2 years should be increased to 5 years considering that many vital projects have long gestation periods.
The reduced rates of income tax for small startup businesses called – START (Startup rebate tax) on lines of similar schemes in China and Singapore can be introduced to encourage and also boost job creation.
There is a need to set up a long term lending institution like IDBI to finance heavy capital intensive infra projects.
Of course, the IMC desires the roll out of GST from 1/4/2016 and efforts to be constantly upped to avoid any further delays.
Government should takes steps to improve tax to GDP ratio by simplifyingthe direct tax structure by lowering the rates and increasing the tax base.
A subsidy on fertilizers, electricity, and water for irrigation has to be progressively reduced. With the APMCs expected to undergo changes, farmers will have better marketing opportunities and resultant better realisations. Agri will then slowly move to market driven economics – based on demand and supply. Related to it is, the need for effective monitoring of the NREGA for linking it to agro activity to make it more productive and, simultaneously optimally utilize the funds for CREATING RURAL ASSETS – such as check dams, minor irrigation projects, rural roads, micro level rural godowns, integrating cooperatives and SHGs for better marketing of produce – especially by the small and marginal farmers. Activities like warehouse management services, security services, lab testing services – so vital for agri wellbeing could be exempted from service tax. Government should consider granting priority sector status to funding for construction of godowns.
Government at the centre and also at the states could consider integrating all social welfare programmes across ministries into one entity for effective implementation and monitoring. This will reduce the cost of operations and also improve the monitoring and review of the government schemes.
Infrastructure – especially transport – roads and ports and power sector needs to be main thrust areas. Savings made on reduced POL subsidies (Of about Rs 30,000/-crores) should be diverted to development. Government should offer exemption from MAT under Sec 80 1A for Infra Projects or at least reduce the current rate of 18.5% to 6% to boost investment. Give infrastructure status to investmentin Education – both primary and higher – to enable inflows. Likewise airlines should be encouraged to issue tax free bonds to improve their financial health. Support services like fuel refilling, cargo handling, parking could be declared as infrastructure sector and taxed at preferential rates.
To boost environment protection, a nominal Green Tax could be added to the services. Likewise environment monitoringmachines could be made VAT free. Renewable energy should be given a big push.
There is need to push for more SEBs and power generating and transmission companies to issue Power Bonds. Likewise Solar Bonds by Solar Farm Hubs could be introduced to boost renewable energy initiatives.
To make investments in REITS attractive, the dividend distribution tax should be done away with when distributing dividend by SPV to REITS. Likewise, the activities under the integrated townships could be given the status of infrastructure to attract long term investments.
The expected tone of the budget is to be that of continuation of the measures introduced last year. However rationalization of the tax machinery, reduction of red tapism and the time bound resolution to the tax disputes is a vital element to make the budget an economy- friendly one.
-By Mr. Prabodh Thakker, President, Indian Merchants’ Chamber (IMC)
