Harsh Pati Singhania
Given that this will be the first full-fledged Budget of the Narendra Modi government, it is expected to provide a blueprint of its reform programme that should push the Indian economy close to 8 per cent growth on a sustainable basis. It should also help improve the overall competitiveness and business climate that will attract investments, whether domestic or overseas. Unless these are adequately addressed, the Prime Minister's 'Make in India' initiative - seen as an apt vehicle to prop up the manufacturing sector and transform India's economic future not only for GDP growth but most vitally for job creation besides providing a big fillip to exports - will remain an illusion.
Despite the boost of confidence from the new government and buoyant foreign investors flooding into the stock markets, the economic recovery is yet to gain ground and we are still far away from a sustainable growth path.
While investments are key, for new projects to come on-stream, revival of demand is of equal importance. The government has to take the lead to fast-track investments in infrastructure to fill the void created by the economic slowdown in the past few years, as private investments will be less forthcoming in infrastructure at the moment as they will be busy executing their pending projects and streamlining their spare capacities. Besides, it will also have to trigger investments in big infrastructure projects in dedicated freight corridors, and others in power and road/highway sectors.
While it seems that the government will stick to its plan to meet the fiscal deficit target, which is laudable, given that it will at least maintain India's sovereign rating status and keep foreign inflows buoyant, I hope it is not done through cutbacks on capital expenditure. If that happens, the growth recovery will be pushed back further. The fiscal deficit has already touched budgeted levels in the first eight months, but the revenue shortfall can be ideally met through a more concerted effort towards disinvestment and rationalisation of the subsidy bill that ideally should be limited only to the bottom of the pyramid.
One of the major stumbling blocks for doing business in the country is the stringent and multiple tax laws, and recognising this, the government is pushing through the GST (Goods and Services Tax). But the revenue neutral rate of about 27 per cent is too high and that could undermine the whole process as compliance will remain poor.
While corporate tax rate of 30 per cent is already quite high, the high incidence of surcharge besides enhanced DDT (Dividend Distribution Tax) and lowered depreciation rates put too much strain on business. This is further compounded by the current high rate of MAT (Minimum Alternate Tax) of 18.5 per cent that impacts companies' cash flows and should be lowered to at least 15 per cent, or half of the corporate tax rate.
While improvement in physical infrastructure is vital, one should not lose focus on the social fabric of the country. With rising literacy and higher aspirations of people, it is also crucial that education levels, in terms of quality and capacity, should be more in tune with employability.
Against a requirement of about 500 million skilled workers by 2022, the current supply is only 3.4 million. To bridge this huge gap, there is an urgent need for the government to provide more impetus on skill development programmes so that a large pool of young populace gets gainful employment.
I hope Finance Minister Arun Jaitley shows a positive intent in the Budget where the overriding priorities should be demand revival and infrastructure development besides setting milestones and time-bound targets for all action to be taken to improve the ease of doing business in the country. This will go a long way to help the economy revive to the high-growth path at the earliest.
Harsh Pati Singhania is Director, JK Organisation, and Vice Chairman & MD, JK Paper.