Budget 2015: Modi government should focus on to boost Indian economy
Budget 2015 is round the corner and everyone, right from the common man to the corporates and foreign investors, is expecting the Modi government to deliver a reform-oriented Budget. The challenge for the government would be to strike a balance between the expectations and fiscal prudence and also to lay down a clear and a stable policy framework to boost the Indian economy.
One of the key focus areas for the government would be to revive the investment cycle. The ‘Make-in-India’ campaign initiated by the government would play an instrumental role to address many of the issues faced by the country today. Increased investment in manufacturing facilities would make India selfsustaining, create employment, increase the disposable income in the hands of the people and trigger the investment cycle.
Success of the ‘Make-in-India’ initiative would depend on the ability to attract investments — both domestic and foreign — into the sector. The government may also consider incentivising innovation and R&D in manufacturing considering its immense potential to increase competitiveness.
Secondly, creation of specific business zones by setting up of manufacturing hubs, industrial parks, more special economic zones, freight corridors, among others, should give a boost to the manufacturing sector. There is a significant rise in the money brought into India by foreign institutional investors (FIIs) in the past 12 months.
However, India needs more foreign direct investment (FDI) as it brings in more stability vis-a-vis the liquidity and euphoria generated by the FII money in the stock market. Policy reforms on the FDI front would encourage the much-needed foreign investments into the country. To begin with, steps need to be undertaken to improve India’s ranking in terms of ease of doing business. For example, a single-window clearance mechanism should be implemented so as to reduce the multiple approvals which are generally sought at the national and state levels.
There is an urgent need for the development of highways, ports, railways and setting up of airports in smaller cities. The government should provide for updating key policies by making laws that are liberal, giving tax and non-tax incentives. Giving concessions such as lower minimum alternate tax (MAT), among others, would provide extra push to these sectors.
Lower tax rates, enhanced tax breaks for investments in the infrastructure sector and measures to make available cheaper and efficient funding for the small and medium sector would also facilitate growth. Further, the Budget should include some policies on liberalisation and attract investment in other sectors.
Next on the agenda should be to widen revenue collection i.e. through increase in the tax base and additional revenues through non-fiscal resources such as divestments. Goods and services tax (GST) is expected to help in increasing the collection of revenue and reducing significant costs, hence, a clear roadmap of convergence of the various indirect tax laws into GST and implementing the same should be specifically laid out.
Tax administration and recruiting additional manpower would be critical to provide better services to increase tax base. Also, aggressive targets should be set to garner additional revenues from disinvestment of shareholdings in non-strategic public sector undertakings, telecom spectrum, coal block allocation and dividends from public sector enterprises.
Lastly, our tax law today has many areas which are subject to multiple interpretations made by the taxpayer and the tax department, of which at least a few need to be addressed at the earliest. For example — the rule on taxability of offshore transactions resulting in an indirect transfer of assets in India. The government should come out with detailed guidelines on the methodology to compute the tax liability in India in case of such indirect transfers
Further, deferment of the general anti avoidance rules (GAAR) till the time tax regime stabilises would be helpful. One would expect the removal of the retrospective amendments made by the erstwhile government.
A year ago, there was a lot of uncertainty in the minds of foreign investors on the tax regime in India. With retrospective amendments and GAAR, there was a sense of panic in doing business in India. However since then, things have changed. The government’s decision to not contest the Bombay High Court judgment in the case of Vodafone, and subsequently, the tax department directing its officers to follow this decision gives a positive signal that the government is serious on working on its promi ..
The litmus test for the government would be to turn its vision into action, and one hopes that the various stakeholders would collaborate to win and put India on a high and inclusive growth trajectory.
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Source:Economictimes
