K R Sudhaman
Come general budget, there will be demand for more tax sops and less economics as it is a case of nine blind men describing elephant and the Finance minister Nirmala Sitharaman is therefore saddled with a tough job to balance conflicting demands. Unlike in China and several other developed countries where the general budget is a mere statement of government account as they have a settled and stable tax structure, in India it is vastly different as general budget is not merely a statement of government accounts for the year but also it unveils the economic roadmap for the coming year. Also there are so many imponderables both in revenue mobilization efforts as well as in expenditure particularly when contingencies arise. That apart there are too many rent-seekers particularly from industries as their lobby is very powerful politically. This also leads to growing crony capitalism and ensures there is no level playing field in economic and regional development.
Be that as it may, the Indian economy is on a path to recovery after Covid pandemic, which pushed the country into negative growth. There is some truth in government's claim that Indian economy is heading for a V-shaped recovery, which is a no brainer as former RBI governor Raghuram Rajan says. After the economy touched its nadir, the recovery is bound to be V Shaped with the lifting of lockdown and the GDP growth returning to positive territory and getting back to pre-covid level of growth. Former Chief economic advisors Kaushik Basu and Arvind Subramanian, one in UPA government and another in NDA government have said India needed to do lot more to ensure that more jobs are created and the demand revived so that the economy gets back to high growth path to become the fastest growing economy.
Both merchandise and services exports are looking up and according to Commerce and Industry Minister Piyush Goyal, the government was confident of achieving a record $650 billion in 2021-22. Also many of the labour-intensive export industries are exiting China in view of increasing labour cost with the rising per capita income in the $18 trillion Chinese economy. Already some have moved to Vietnam and Bangladesh and some have come to India as well. Also many multi-national companies are looking to India to make a global manufacturing hub to reduce their dependence on China.
In the light of this background, it will be interesting to see the measures being announced in the 2022-23 budget to attract investments particularly in labour-intensive sectors like textiles, electronics, leather, IT services and so on. These sectors have huge potential for exports and job creation. The fact that a lot many have been pushed into poverty because of the covid lockdown, the budget will certainly take steps and some out of the box for stepping up employment. There is also need to step up investment in infrastructure particularly in ports, airports, highways, construction. There are already indications that the general budget would step up capital expenditure to a record Rs 2.5 lakh crore in 2022-23, which will be welcome. There will be increased capital expenditure in other infrastructure sectors as well.
There are some concerns about the emphasis on Atma Nirbhar Bharat, which leads to increased protection and higher customs duties on certain items to curb imports. In this context, both Arvind Panagariha, former NITI Aayog Vice Chairman and Arvind Subramaniam have argued the need for India going for more regional trade agreements and free trade agreements to take advantage of global trade. Of course India has huge domestic market but it is miniscule compared to global market. While India's market could perhaps be around half a trillion dollars, the global market is around $20 trillion. Also it has been seen in the past after 1991 reforms, India's exports grew substantially when import tariffs lowered, restrictions removed and import substitution policies abandoned. Indian companies are needed to be part of global supply chains if they had to push exports. One can be competitive if costs are lower and lower tariffs help in this regard. Since India opted out of RCEP (Regional Comprehensive Economic Partnership) because of its stand-off with China, many of the companies exiting China are going to Vietnam because of high tariffs and atmanirbhar policy in India. Political compulsions due to India-China standoff might have pushed India into this atmanirbhar, but it is doing no good to the economy particularly when the need of the hour is to attract more and more job creating industries by pursuing export led growth. Also India has missed out on the opportunity to tap the huge export market in East Asia, which are now being cashed in by countries like Vietnam, Bangladesh and so on.
The government will do well to address some of these issues in the budget by taking a holistic view to kickstart the economy. Disinvestment and privatization is another area where the budget will have to focus on to garner resources for capital expenditure. Of course privatization is needed to be done in a manner that it did not encourage crony capitalism. Pakistan's economy was controlled by just 22 families at one time and all of us know where its economy has been pushed to now. So it is in India's interest to keep competition alive in the economy. According to Kaushik Basu, competition is still intact in India and effort should be made to ensure that the country did not move towards crony capitalism.
The budget will also do well to ensure that tottering small and medium industries are given a helping hand to become bigger companies taking advantage of economies of scale. ARs 50 crore company should be encouraged to become Rs 500 crore company rather than being incentivized to remain a Rs 50 crore company. This will also promote much needed entrepreneurship in the country. The encouragement to start-ups by this government is a welcome development and this had helped in creation of many unicorns in the country. More such steps are needed to encourage small and medium industries become big to get a larger pie of the global trade through exports.
Gradual withdrawal of tax exemptions to industries in particular has been an ongoing process. There are indications more exemptions would be withdrawn or restructured in the budget and if that happens it would be a welcome development and a step towards providing a level playing field. The government has been losing nearly Rs 6 lakh crore every year in providing various exemptions. A gradual withdrawal will increase tax revenue without raising taxes, which augurs well for stepping up capital expenditure. These some of the broader structural issues and hope the budget addresses some of them. (IPA Service)
