(Narendranath K Menon)
India’s growth rate is likely to decelerate to 6.6% in the next fiscal year (2023-24) according to the World Bank. The IMF believes that during the same period, growth will be 6.1%. Further, the IMF has warned that one-third of the world economy will be in recession.
In the backdrop of these prognoses, what can the Union Finance Minister, Ms.Nirmala Sitharaman ring in, to engender a smooth passage for the Indian economy in the ensuing fiscal year? Steps that she initiates to stimulate investments and elevate job creation could verily help in eclipsing the predictions of the Bretton Woods twins. In a few days from now, we will know what awaits us. In a year from now, the proof of the pudding can be had.
A modicum of consumption booster in the form of an enhancement for a limited period under the PM-Kisan scheme appears likely. Under the scheme which was originally launched in February 2019, a sum of Rs.6,000 (in three equal installments) is transferred to the account of farmers. The enhancement may be to the extent of Rs.2,000 per year and the additional cost to the government would be in the region of Rs.22,000 crore. Notwithstanding the government’s desire to curb revenue expenditure, the political and economic benefits resulting from the enhancement may be compelling from the government’s standpoint. Another policy direction anticipated is the enhancement of budgetary resources for Rural Housing. Under the flagship program of the Modi government, namely, PMAY-G, the government aimed to build 29.5 million houses in rural areas with basic amenities and electricity connections by March 2024. By mid-December 2022, 21.1 million houses had been constructed. It is very much on the cards that Ms.Seetharaman would make sufficient budgetary provisions to enable the realization of the original target. Given some state elections in the near term and the next general election in a little over a year from now, as also the fact that rural housing is capable of generating jobs, rural housing will be a thrust area.The expenditure and policy articulation on Health is invariably dwelt upon during Budget time. Expenditure on R & D by Indian pharma companies is measly when compared to their counterparts in China and the US. Further, some Indian drug makers have been under a cloud in the recent past. To shore up India’s pharma capabilities, the Finance Minister may announce some incentives for pharma companies that increase their R & D expenditures. Also, on the lines of ICMR, an announcement on the setting up of an inter-departmental research council to further research in the pharma sector should serve as a booster.
The Power sector in the current fiscal year saw an allocation of Rs.7,565.59 crores for the revamped distribution sector scheme (RDSS). Among other objectives, the scheme aims to reduce the aggregate technical and commercial losses (AT&C) of power distribution companies. Additionally, the installation of smart meters will help address the problem. In an attempt to plug the leakages, the upcoming budget is expected to substantially increase the allocation for RDSS.
area that will benefit from simplification is the taxation on capital gains. Currently, the capital gains tax sphere is wide, varied, and extremely confusing for the average person. The rate of tax, the duration for which the capital asset is held, and the availability of indexation, differ, depending on the type of capital asset, tax residency status, etc., In the view of this commentator, simplification of the rules in the area of capital gains is a message that will be welcomed by the investing community. Its train simplification would make for elevated investment in the market and the creation of jobs – two things that we sorely need.In line with the government’s commitments at international conferences, the Finance Minister can be expected to establish pathways to promote the use of electric vehicles, promotion of renewable energy, and penalize the adoption of technologies that leave a carbon footprint.
Further, the availability of finance will be critical in achieving India’s energy transition goals. Increased budgetary allocations for the Indian Renewable Energy Development Agency could lead to the financing of relevant projects at concessional rates. The temptation to adopt a populist path is high. The need to meet the fiscal deficit target of 4.5% by 2025-26 will serve to exercise restraint. Other than a significant step up in capital expenditure, the Finance Minister is well advised to abjure fiscal profligacy and embrace fiscal consolidation.
