The government is aware of the pain points. It will make required interventions in order to propel our economy to the next level
Global economies have been hit hard by the Covid-19 pandemic,
and India is no exception. Post-pandemic economic recovery is a big challenge
for all of us. Governments and central banks across the world resorted to
fiscal and monetary measures to ward off the negative impact of the crisis.
These measures included liquidity infusion, credit enhancement, deficit
financing, direct benefit transfers, even the printing of currency and
distribution of helicopter money.
These stimulus packages
did help in the economic recovery, but disruptions in the global supply chain
and the resultant strengthening of commodity prices, and liquidity overhang
have led to inflation. Now, when the central banks have started sucking the
liquidity out of the system to contain inflation and governments are reversing
the stimulus in the interests of fiscal consolidation, a sustainable global
economic recovery seems to be a distant goal.
The Indian government
also came out with a stimulus package in the form of Atmanirbhar Bharat
(self-reliant India), which had several measures but stopped short of printing
currency, and did not resort to the distribution of helicopter money. So, post pandemic,
the Reserve Bank of India (RBI) is comfortably placed in its fight to contain
inflation. It can reverse the excess liquidity from the economy in a phased
manner while continuing to extend credit support to the needy segments. The
government also has ample space for fiscal consolidation.
Our economy, at present,
is in a resilient mode and we are witnessing a sharp post-pandemic recovery,
thanks to the farsighted approach of the Narendra Modi government and RBI. This
confidence in our economy is not only visible domestically, but also seen within
the global investor community. Our macro-economic parameters are strong across
segments. The government and RBI. This confidence in our economy is not only
visible domestically, but also seen within the global investor community. Our
macro-eco-nomic parameters are strong across segments. The government is continuing
with its infrastructure spending and schemes such as Production Linked
Incentives (PLI) are bringing the desired results in the domestic manufacturing
sector.
It is against this
background that the budget for 2022-23 will be presented. The first requirement
to put economic growth on a sustainable path is to identify current challenges
and to come up with a roadmap to address them.
The economic
repercussion of the pandemic in India has not been equitable and it has been
particularly harsh on the informal sector.
Consequently, there has
been a deepening of income and wealth dis- parity in society. The last few
years have seen very little growth in aggregate private consumption in the economy.
Any support for the informal sector will help in increasing private consumption
as well.
Micro, small, and medium
enterprises (MSMEs) are the growth engines of the economy, but were severely
affected by Covid-19 related disruptions. They require working capital and
other credit facilities. It is expected that the government will extend the
credit guarantee scheme for MSMEs. There is also a fear that the looming
liquidity crisis might transform into a solvency crisis; it would, therefore,
be advisable that the Insolvency and Bankruptcy Code (IBC) provide additional
relief to small firms. There is a growing consensus that this segment
requires new instruments for private capital formation.
It is expected that the
government will focus on fiscal consolidation from the coming financial year . However,
there is considerable uncertainty regarding its pace. A fiscal consolidation
road map will help in the orderly working of the financial and capital markets.
However, the glide path of fiscal consolidation should not be too steep.
Another important issue
is the rapid rise in com commodity prices, affecting businesses because they
are not able to pass on the increased costs to consumers due to weak demand.
Reducing import duties on such products will tame costs and reduce inflation,
particularly the wholesale price index (WPI). This will also help manufacturing
industries, which were adversely impacted due to the rising costs of base metal
and raw material.
Though Goods and
Services Tax (GST) collections are increasing, over the years, the average tax
rate under GST has come down to around 11.6%, much below revenue-neutral GST
rate of 15-15.5% as envisaged at the time of GST implementation. There is space
to improve the average tax rate to bring it to around 15.5%. The government
must improve the tax to Gross Domestic Product (GDP) ratio.
Corporate tax rate has
also been reduced to around 25% on average. However, for the tax-paying middle
and upper middle class, the highest marginal rate of taxation is above 40%
right now. If the government introduces infrastructure bonds, which provide for
additional investment-related deduction from taxable income, then not only will
it bring down its total tax liability but also generate critical financial resources
to invest in infrastructure.
Disinvestment has been
one of the focus areas of the Narendra Modi government and the driving
principle behind this is the government's belief that public money locked in
such assets should generate higher returns. However, a section of analysts and Opposition
parties have tried to portray this as an exclusively revenue generating
measure. The government needs to reaffirm the principles of better utilisation
of public capital, underlying the disinvestment plan in the budget.
Monetisation of assets of public sector undertaking has not been taken up as
envisaged earlier and will require renewed efforts.
Our government is well
aware of these pain points. The public is confident that it will make required
interventions in this budget to propel our economy to the next level and this
positive sentiment is quite visible in the business ecosystem. The government
will continue on its path of eco- nomic reforms to build on this business
confidence.
Gopal Krishna Agarwal is the Bharatiya Janata Party's national
spokesperson on economic affairs
The views expressed are personal
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