The Modi government, in its third term, is set to launch the Union budget boasting of unrivalled political capital. Armed with a thumping mandate in various
state assembly elections post May 2024 setback, the government now sits pretty having clinched a historic FTA deal with the European Union on the eve of the Union budget.
In terms of messaging, the ninth budget (a record for any woman finance minister) and one short of an all-time record held by Moraji Desai, Finance minister, Nirmala Sitharaman finds support from all independent global financial institutions who continue to invest faith in the India growth story and are bullish about it.
So, with this background, should the upcoming Union budget, stay the course or show verve to bite the bullet? Traditionally India has demonstrated the political will to unveil big ticket internal and external reforms when confronted with a crisis. The current government often claims to convert adversity into opportunity. But why not build speed and scale when the situation is by and large positive with macro fundamentals in decent shape.
Doing so would not only restore faith in the Union budget as a key policy tool but also position Sitharaman probably in the same league as Dr Manmohan Singh (his July 1991 Budget). Only if the latest Budget marks a positive movement forward on (held in abeyance) land acquisition and farm reform.
She, of course, has to her credit three major policy decisions like corporate rate tax cut, historic personal income tax liberalisation and the GST reform. Here is a policy announcement wish list for the India growth story to not only sustain but fast track to be the third largest
1. To fully leverage the corporate tax cut, it is time the government goes beyond a polite nudge to India Inc to raise the capex. The Union government has been doing heavy lifting but the effort cannot be sustained forever. Suggest an independent regular audit and playback system for necessary action. An incentive scheme for corporate materialising their announcement on capacity expansion. But clear no to discretionary powers to babu.
2. Power utility reforms have recently yielded unprecedented results with many state power boards turning profitable. This calls for bold policy looking afresh at free power for farmers. Like individuals, farmers too need to be categorized as per income, and one size fits all paradigm removed, to reduce undue burden on states shouldering the subsidy burden.
3. Launch a ‘National Critical Minerals and Rare Earth Mission with clearly mapped out comes. India’s vulnerability in the domain is well established and we need the self -reliance piece to kick in immediately.
4. Heavy duty energy imports and the resultant vulnerability from geo political and geo economic conflicts continue to drain India’s scarce resources. In 2014, the Prime Minister had announced a 50 per cent reduction in imports but we haven’t moved much in that direction. Time to convert it into mission mode exercise involving the private sector.
5. India has witnessed dipping foreign direct investment flows. India needs a stable tax regime to keep foreign investors interested. Sovereign interests are paramount but it is equally important to have a policy framework which is not ad hoc and least of all retrospective. Similarly, we can’t rest easy on flight of capital in terms of FPIs. There has to be greater confidence among global investors in the India story.
6. Ease of doing business continues to yearn for improvement. The regulatory cholesterol needs to be removed. More than any grading, it is time for eliciting honest feedback from corporate India, especially foreign investors, on last mile difficulties they face even today. The Union budget could announce a new roadmap for easing the stress in the value chain. To begin with induct district magistrates as Chief executives for select districts empowering them to drive the spirit of entrepreneurship.
7. The Budget must announce big ticket investment in defence. Increase capital outlays by about 30 per cent of the total defence budget. Three key areas to focus on are R&D, capital expenditure and exports.
8. An estimated 2.03 lakh crore are spent annually on free ration for 80 crore people. It is high time to review the scheme and make it more targeted at the really deserving. The government claims to have lifted 25 crore people out of poverty hence why persist with a free food subsidy. India needs to stand on its own feet and not be prone to endless crutches.
9. The Modi government has demonstrated the power of public sector enterprises in certain key sectors but has gone almost dormant on disinvestment leave alone privatisation. Leverage the ‘Navratnas’ to create a revenue pool to offer a cushion to rising government capex.
10. A simple and transparent tax regime across direct and indirect domains. The inverted duty structure needs rationalisation. Also, the middle class doing the heavy lifting needs to be assuaged that there is no tax terrorism. Security Transaction Tax (STT) too needs a review alongside request for indexation reinstatement.
