Sunday, February 22, 2015

Budget '15 : Run-up and our Expectations

Sunday, February 22, 2015

As the Modi Govt is just days away from tabling its first full-fledged budget for this fiscal, a lot of expectation is permeating the air around us.The Govt with its continued efforts for socio-economic reforms should be headed for  a long-term & sustainable growth agenda.
Let's check out the Key efforts in this pre-budget run up : -
  • Spearheading implementation of Goods & Services Tax (GST).
  • Transparent & judicial allocation of key natural and national resources - coal blocks, spectrum, and more in the offing.
  • Raising FDI limits to boost investments & capital outlay in critical sectors.
  • Promulgating ordinances - Over 9 ordinances have been promulgated in the last 9 months of the Union Govt. in key areas like Insurance, Land acquisition, Coal mines, Motor vehicles, Securities Law taking action against Ponzi schemes and so on.While, this has the positive impact of keeping the economy cruising with the right momentum & pace with well-defined timelines for implementation of schemes & projects keeping the disruptive parliamentary processes at bay by the weening executive.However, the President has advised the Cabinet to exercise caution as a hurried approach without a 360 degree review of the concerned aspects could have detrimental effects.
Having done with the run up, let's go through the general Expectations from the Annual Financial Statement 2015 : -
  • Simplified Taxation : - This alone is the single most factor influencing every Indian.A simplified Direct Tax structure, straight-forward, non-stratified deduction mechanism along with steps to widen the Tax net & reach, are undeniably the most watchable features of the upcoming budget.
Higher tax incentive would have significant impact as it would boost the National Savings Rate which has declined to ~31% down from 35% last year, a majority of which would be converted into potential investments through financial intermediaries further bolstering the economy.It would be indeed prudent to rely on domestic funds instead of showing excessive exuberance on foreign inflows over-stressing Current Account.
       In Indirect Tax segment, GST is the poster boy that can revolutionize India's economy & its regulatory framework boosting a pro-Business image and scaling up its Ease-of-doing-Business indices.Hence,the budget should come with a timeline & go-live date for the GST.
  • Massive job creation : ~90% of jobs in India are in the informal sector.Massive job creation in the formal sector is the need of the hour.There are 4 primary objectives that the budget should address in this perspective : -
  1. Expanding formal sector & facilitating the increase in the size of enterprises : There are over 50 million enterprises in India, of which only 7500 have a capital outlay of over 10 crore.With close to 85% of the manufacturing enterprises employing not more than 50 people, expansion has become all the more indispensable.
  2. Rapid Urbanisation : Instead of bringing people to the jobs, the focus should be on bringing jobs to the people, pragmatic planning and creation of Smart cities to prevent over-stressing of existing Urban ecosystem due to mass migration of people from rural areas to the existing metropolises.China has followed such a program developing over 375 such cities assisted by Minimum Wage Program leading to mass migration of people from farm to factories.
  3. Revolutionizing education sector : Empowering the schools & colleges to crack the consolidated puzzle of cost, quality and scale will lay the broad underpinning.New Education Policy launched later last month can prove to be the guiding light in the thematic areas of School and Higher education. The Right to Education Act is required to be suitably amended to have an objective approach towards long-term & practical aspects and outcomes of education, like skill development, innovation, job-orientation.
  4. Land & labour reforms : - Both the issues are critically sensitive, hence a wrong step forward can lead to paralyzing the situation.A clear roadmap for land acquisition powered by land title guarantees will not only ensure faster commencement of projects but also less state resources and energy in acquisition issues. Labour reforms should be envisaged with two broad perspectives - first encouraging states to alter laws and ensuring flexibility and secondly maintaining a status quo over the hire-&-fire policy.
  • Boosting Public & Private Investment : - This is a key indicator to meet long-term economic goals & infrastructure building.Public funds are required to be judiciously utilised to build infrastructure with a parallel promotion to private investments with Effective PPP projects hitting the bull's eye in this perspective.Public assets can be given in private hands for operation & maintenance for optimal utilisation of available assets.Adequate channels of funding should be ensured to private entities with policies to empower the Banking and Finance sector.A National Asset Management Company could be created to advice banks on offloading Non-performing assets by their strategic sale thereby enabling them to write off those bad assets from their Balance sheets which was ratified by RBI in its latest policy review.
            Delving into the sector wise outlook, IT sector for instance has scores of innovations sprouting in the form of Start-ups.In fact, India is having the 4th largest Start-up ecosystem but no formidable policies to boost the ecosystem with Angel investors still jittery due to the prevailing IT rules and regulatory framework.Similarly, the Health sector requires renewed focus on Preventive Medicines and Healthcare, promotion of Generic drugs and a transparent machinery for Drug pricing.
  • Revitalising SEZs : The 'Make in India ' campaign has been launched by the Govt. with the objective of fueling domestic Manufacturing & Investment.Hence, setting up of National Investment & Manufacturing zones are to be fast-tracked. Reviving the SEZ from regulatory issues and dictatorial tax burdens of Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) remains the key policy factor.The MAT which was 7.5% in 2007 has steeply scaled upto 18.5% which needs to be curbed within 10% as per expert opinion to provide the SEZs with a much needed breather.
  • Boost to disposable income :-  The budget should have adequate instruments to boost disposable income of the people that would boost consumption and raise Consumer Goods Index.A strategic formulation of excise and customs will redefine the focus in this perspective.A prolonged period of soft growth and strong inflation has dented consumer's spending ability and the trend has to be reversed to boost the GDP as well as IIP. On the supply side, although inflation has moderated, FMCG are flooding in abundance, food inflation is still high hovering around 7%, entailing a overhaul for food & agri-production and logistics.
  • Transparent regulatory framework : - Regulatory uncertainty continues to be one of the key concerns of the businesses & investors.A litigation-free coherent and open-ended dispute resolution mechanism and a Uniform tax code as promised by GST is of paramount importance in clearing up the air.Implementing Lokpal & notifying rules for Whistle Blower Protection Act simultaneously draws relevance in putting up a transparent and accountable Governing facade.

  • Integrated Development programmes and Citizen services : - With the foundation stone for "Co-operative Federalism" being laid with the advent of NITI Aayog, Centre-State relations are being taken to a new level, paving the way for higher allocations to States from the Union exchequer.Budget allocation for " Digital India " programme would be crucial, envisioning digitization of citizen services, promoting e-literacy, boosting IT and ITeS sectors,creating formidable Telecom and Broadband infrastructure, self-sufficiency in electronics manufacturing within the ambitious 2018 target of the project in transforming India into a digitally empowered information society and knowledge economy.
On a parting note, a judicial mix of austerity by cutting bad expenditure on defunct schemes and projects running to feed the vested interests of a handful, clearing the archaic regulatory cholesterol blocking the arteries of growth and prudent investments for attaining the long-term goals should be the objective of the Budget.With the adrenaline of ambition and aspirations running high among the citizens and the corporate alike, it remains to be seen whether the Govt. can do justified barethread balancing act between being pro-citizen and pro-corporate.

Stats Courtesy : Press Information Bureau, NSSO
 
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