The 2015-16 budget laid down a roadmap for achieving medium to long-term socio-economic targets. While we expect continuity, we do hope that the forthcoming one will incorporate specific measures to stimulate demand and investment.
The current growth is being propelled by public investments and there is a need to continue the thrust by enhancing outlay, especially on infrastructure development. For this, even if the finance minister needs to recalibrate the fiscal deficit target, he must do it. The need of the hour is to have a fiscal policy that is geared towards building productive capacities in the economy.
Given the low level of private investments, we look forward to policy measures to boost consumer and business confidence. The budget should come up with a tax framework that puts greater disposable income in the hands of consumers and encourages firms to invest. Further, to boost demand for housing, the Centre can also consider providing 3% interest rate subvention for housing loans up to `10 lakh.
In addition to policy support for encouraging domestic private investments, there is a need to lower the cost of doing business. As demand improves and capacities reach optimal levels, businesses will increasingly reach out to financial institutions to raise credit for expansion. However, the prevailing high cost of finance could dent this process. All possible efforts are thus needed to address the issues of the banking sector, especially that of stressed assets and capitalisation. Last year’s budget announced `7,940 crore for recapitalisation of public sector banks. The Indradhanush plan announced last year talked of capital infusion of `70,000 crore in four years upto 2018-19, of which `25,000 crore will be added in 2016-17. However, this might not be adequate.
The FICCI has suggested the creation of an entity called National Asset Management Company for one-time resolution of large NPAs in India. Simultaneously, the government should expedite the review of small-savings interest framework to ensure effective transmission of policy rates cuts into lower lending rate by banks.
The FM has to manage the expenditure for 2016-17, as he is faced with committed expenses on account of the Seventh Pay Commission awards as well as pension expenditure following implementation of the one-rank-one-pension scheme. In light of this as well as the need to enhance public capex, it is recommended that unproductive and consumptive expenditure should be reined in. Subsidies need to be rationalised and better targeted. Simultaneously, revenue sources need to be expanded by widening the tax base and preventing cases of tax evasion. To begin with, all incomes above a certain threshold should be brought under the tax net. Further, as the government draws up a plan to eliminate exemptions and reduce the corporate tax rate, it must also simultaneously look at reduction in the Minimum Alternate Tax rate. Hence, with the phasing out of incentives, the burden of MAT must also be gradually reduced. Finally, there is also a need for overhaul of the tax administration and dispute resolution machinery.
Harshavardhan Neotia is president, FICCI
The views expressed are personal