Infra push to help revive economy
The focus of the Budget should be to boost infrastructure expenditure through increased public sector spending. This infrastructure push would also help revive demand, especially in rural sector and increase job creation. Furthermore, private sector spending and investments need a significant boost. This shall require better predictability of government policies and rationalisation of policy governance measures, which are a key to enhancing investment sentiment in the economy, Akhil Bansal, deputy chief executive officer, KPMG in India tells Y V Phani Raj in an interview. Excerpts
Strengthening the infrastructure is of high priority for the government with the plan to invest Rs 102 lakh crores in the sector by 2025. The focus should be more around connectivity infrastructure, e.g., rail, roads and ports. Additionally, making renewable energy more viable for clean energy projects and exemptions for cross-subsidies and transmission charges through a captive renewable energy policy should also give a big push to the power sector.
Higher budget allocation to the process of defense modernisation is considered to be the government’s priority, as the armed forces are currently struggling with budgetary constraints to achieve their modernisation targets. ‘Make in India’ and self-reliance are essential, but time consuming; hence, new procurement with technology transfer must be continued simultaneously. The allocation of the defence budget made in 2019 will have to increase substantially in the interest of national security by 2020.
Healthcare & Pharma
Focus on affordable healthcare and more outlay / penetration on Ayushman Bharat would be critical. Healthcare infrastructure in the form of more hospitals and more institutions to increase the number of healthcare professionals will also be critical.
Though the government infused Rs 700 billion capital in public banks in FY20, it was considered inadequate as a substantial chunk of the amount was used to clean bad loans and meet Basel-III requirements. In order to boast liquidity and capital availability, speedy resolution of IBC cases would be critical, which would provide a much needed breather to the sector already grappling with high bad loans.
IT & Electronics
To make the Indian market more attractive for MNCs to opt for domestic production, the budget may unveil a scheme on production-linked benefits. This move could be centered on attracting high-tech semiconductor and microprocessor manufacturers. It would be an addition to providing tax incentives to solar electric charging infrastructure, computers, and servers. Currently, the Indian requirement of chips is completely met through imports.
As a part of the ‘Make in India’ initiative and the vision to make India self-reliant, the government is expected to fund and create more industrial corridors and cluster parks. While the government has announced several initiatives including Sagarmala, Bharatmala, Logistics Corridor etc., what will be critical is to ensure priority completion of these projects.
MSMEs contribute around 29 per cent to India’s GDP and the government has targeted to take it to 50 per cent in next five years. In order to boost MSME sector, availability of finance especially with the ongoing Non-Banking Financial Company (NBFC) turmoil shall be critical. To smoothen operations, MSMEs are also looking for ease in compliance and filing guidelines for startups, rationalisation of GST regime, and increase in fund for scheme such as Market Access Initiative.
Maintaining GDP growth
Inflation over the last few years has been largely in control. The current uptick is more cyclical in nature and shall be within acceptable range in next quarters. The government can loosen up on its fiscal deficit targets and focus on higher expenditure, to ensure the slowing GDP is revived.
Since market seems to factor a fiscal deficit-to-GDP ratio of 3.7-3.8 per cent, divestment in government controlled companies would be a priority area, to address the revenue shortfall. Another option could be privatisation of such entities. While the disinvestment targets are falling short, the government will still push forward on its disinvestment agenda and even possible monetisation of certain non-performing assets. Over the next fiscal year, we can expect significant government revenues from disinvestment of key government owned PSUs.
A 15 per cent increase of fund allocation is expected in budget FY21 to transform rural India, boost rural economy, and raise incomes of small farmers. An additional funding of Rs 400 billion is expected in rural India. The budget will focus on connecting villages (digitally), providing basic amenities, promoting exports and incentives for merchandising. Focus should also be on setting up clusters of agri-processing units as these will be critical to drive the government’s initiative to double farmers’ income.
The expectations from this Budget shall be a) rationalising the tax structure and b) setting up a framework to manage information received under the Organisation for Economic Co-operation and Development’s (OECD’s) automatic exchange route. Tax structure initiatives shall largely be around rationalising Dividend Distribution Tax, measure to reduce complexity of minimum alternate tax (MAT), and reduction of personal income tax to boast demand.