Budget 2019: Modi government must focus on income tax rates, job creation, agri and infra

Budget 2019 India, Budget 2019-20

By Sandip Somany

Union Budget 2019 India: The clear mandate to the NDA government led by Prime Minister Narendra Modi for the second consecutive term allows for stability and continuity in the reform process. Today, the government stands empowered to undertake long-term structural reforms and fully utilise this opportunity to transform India and push it into the league of developed nations.

Prime Minister Narendra Modi in his first address, post announcement of election results, underlined the importance of inclusivity in the development agenda of the nation, and reiterated the mantra of 'Sabka Saath, Sabka Vikas', with additional emphasis on 'Sabka Vishwas'.

With several significant announcements being made following the first meeting of the new Cabinet, it is quite encouraging to see the government already geared up for action. All eyes are now fixed on the Union Budget 2019-20. This will be the first big opportunity for the government to showcase its ability to deliver, and just like every other section of society, we, from industry, also have significant expectations from this Budget.

Macro headwinds remain predominant due to a host of domestic and global risk factors. GDP growth is slowing down, the unemployment rate is high, financial sector is seeing a fresh bout of crisis, and both investments and consumption demand are muted. Globally, trade tensions are showing no signs of a respite and geopolitical tensions continue to spook markets. So, what should the government focus on, in the upcoming Budget?

The Interim Budget 2019-20 announced earlier this year was a progressive one. In fact, the 10 dimensions of the Vision 2030 laid out in the Interim Budget touched upon all the critical pillars of development and will enable India to achieve its target of becoming a $10 trillion economy by 2030.

As we prepare to move in that direction, it is crucial to first address the two big challenges that we face, i.e. investment and employment generation.

While there is room for RBI to cut the repo rate by another 100 basis points along with sustained efforts for transmission of the interest rate reduction to the actual borrowers by banks-to boost investments, the government can usher in a new taxation framework linking new investment to the creation of jobs, which will act as a catalyst.

Under this scheme, companies making investments, which generates employment for 250-499 people, should be allowed to avail a rebate of 2% in corporate tax for the next five years, beginning from the date of the commissioning of the plant.

The entities generating 500-749 jobs may be allowed to have a rebate of 3% in corporate tax, and those creating 750-999 jobs should be allowed a 4% reduction.

Finally, companies generating 1,000 or more jobs can be allowed to avail 5% rebate in tax payment, and pay corporate tax at the rate of 25%.

This will rejuvenate the investment scenario by rewarding employment-generating companies and help the government in achieving both its immediate objectives, i.e. reviving investment and job creation, through this one move.

With this, revitalising the agriculture sector should also be a clear priority. To enhance yields and mitigate the risk arising from an adverse monsoon, we must step up investments in irrigation (including micro irrigation) across the country. There is also a need for the crop mix to be more value-added, and to strengthen the agriculture supply chain to reduce wastage and enable better prices for farmers. Farmgate and near-farmgate storage (of more than 1,000 MT) should be developed on priority under the Rashtriya Krishi Vikas Yojana (RKVY) to enable small producers to hold produce till market prices are remunerative enough to sell. A plan for national warehouse grid along the highways should also be launched. Additionally, we need to plan for a major improvement in the agro-processing industry. With India being one of the largest producers of several agri-products, we should work towards becoming a global leader in the processed food industry.

Providing a fillip to the infrastructure sector is another important step. The government must announce major projects in sectors such as roads and highways, suburban metros and airports. The multiplier impact on the economy through generation of demand and new jobs from large-scale infrastructure projects will be huge and this is something we need at the current juncture. As the infrastructure sector gets going, the demand for steel, cement, power, commercial vehicles and capital goods will all go up.

Re-energising our exports and supporting them is vital. The global trade dynamics are changing fast. We need to adjust to these and continue to look at newer markets. The country needs an institutional mechanism for 'global market intelligence' to regularly conduct market studies, sector-specific studies to understand the dynamics of global trade, barriers to trade, market entry opportunities, etc. This may also include mapping of specific markets to specific MSME clusters. Detailed information should be made available to exporters through an 'export information portal'. Suitable allocation in the Union Budget may be made for this 'market intelligence cell'. The government must support marketing campaigns in foreign markets for building 'brand India' and promoting made-in-India products.

A few other supporting measures are also required. Simulating household consumption and savings: A major direct tax announcement in the Interim Budget related to exemption of income tax for assesses with annual income of up to Rs 5 lakh. This is a positive step and should be continued. Income tax slabs for individuals needs to be revised upwards. The highest tax rate of 30% should be applicable only for incomes above Rs 20 lakh. At the same time, investment limits under Sec 80C, Sec 80D and deduction for interest paid on housing loan under Sec 24, etc, be enhanced. These measures would leave more disposable income with households and thus boost overall consumption in economy.

An ambitious plan for disinvestment: In the Interim Budget, the target set for disinvestment was Rs 90,000 crore. This must be raised in the full Budget to at least Rs 1.5 lakh crore. A slowing economy may not yield revenues at the rate expected on the tax side, but we can look at raising the bar on disinvestment. There is already a list of CPSEs and their idle assets-land, industrial units, etc-and these assets must be monetised quickly.

Last but not the least, incentivisation of employment-intensive sectors will help in adding more jobs. Special export zones for sectors like textiles, leather, gems and jewellery, footwear, toys must be announced with benefits like subsidised land, duty-free imports and tax holidays. The government may create plug-and-play units for some sectors like garments where all facilities are provided on minimal rent basis to young entrepreneurs for initial 3-5 years.

(The author is president, FICCI)