As the current government takes charge, it realises that the growth of the economy is no longer in an auto pilot mode, as it was in 2004.
For Prime Minister Manmohan Singh and his team to deliver on their promise of 9 per cent growth, Budget 2010 offers an opportunity to think beyond the routine.
The scope of disinvestment, for instance, should not be limited to stake sales in government owned enterprises, but a holistic approach of including all national assets should be considered. Auctioning scarce national resources, such as 3G licenses in telecom sector, in the open market, would indeed fetch the government a reasonable sum.
With the government’s stake in certain public sector undertakings (PSUs) at over 90 per cent, offloading a minimal 10 per cent stake would enable the government to raise upto Rs 37,000 crore, considering the current buoyancy in stockmarkets.
Further, a long term roadmap for disinvesting stakes in all non-strategic holdings and loss-making PSUs, even at a discount will generate enough money to channelise in to long term socio economic projects.
The disinvestment program can have another advantage besides reducing the fiscal deficit. It would subject PSUs to market discipline so that its management can measure its performance through the yardstick of its stock valuation in the open market.
The next big initiative the government could consider is the promotion of special economic zones to boost India’s exports earnings substantially. It should welcome foreign direct investment (FDI) and commercial loans in all long gestation projects and take care of simplification in compliance which hitherto has become obstacles for foreign investors.
Private equity firms and risk taking entrepreneurs should be given more tax breaks to encourage a culture of innovation. It could also consider promoting an ‘enterprise investment scheme’ which are prevalent in some other parts of the world, such that more people take risks, invest money and lead to greater employment.
Microfinance is another such vehicle that has become a successful venture any many developing countries for inclusive growth.
Direct taxes are a major source of revenue for government. The phenomenal growth of the Indian economy had resulted in an unprecedented rise in direct tax revenue collections in the last fiscal year.
As a result, the direct tax collections had, for the first time, exceeded the indirect tax collections. It is felt that there is a need to re-look the tax structure in Budget 2010 and examine the possibilities of lowering the tax rates.
The proposed new tax code should plug leakages of tax revenues which include misuse of double taxation avoidance agreements India has with other countries. It will help to streamline the tax structure and reduce the plethora of exemptions given to various segments of taxpayers.
Tax administration and tax compliance should be suitably tightened to bolster further tax collections.
There would then be a clear case of lowering tax rates which would enable higher disposable income.
Tax Information Network’ (TIN) should be used for widening and deepening the tax base, and computerising selection of cases for scrutiny on intelligent criteria.
The voluntary disclosure of income scheme (VDIS) should be brought back, so that unaccounted money lying in safe havens is brought into the country through legitimate channels.
Better tax administration and effective means to settle tax disputes speedily should be looked into such that tax demands result in effective tax revenues.
The number of exemption notifications should be reduced.
With the astounding victory of the United Progressive Alliance, the Indian public has given a clear mandate to the present government --- implement reforms that will enable our country to move towards a path of attaining double digit economic growth on a sustained basis.
(The author is chairman, BDO Haribhakti)