ô Budget should generate long-term infra funds - The Hindu BusinessLine




          Rahul Mazumdar | Updated on January 30, 2020 Published on January 30, 2020


          The government’s revenue and expenditure plan for the next financial year will be presented in just a few days. It’s a foregone conclusion that the Indian economy has not been performing as well as in the past; there is little point in echoing the same again.

          However, fiscal concerns have been hogging the limelight. It remains to be seen how the trinity of spurring private investment, increasing consumption, and the clamour for government spending is met while maintaining fiscal prudence. At the same time, one must ponder over whether the fiscal target should remain sacrosanct in such precarious times.

          Loosening the fiscal strings would perhaps be the way ahead instead, despite possible scrutiny from rating agencies.


          With the private sector reluctant to invest in the economy, the onus remains on the government. Eight months into the new financial year (till November), the government had only spent 65 per cent of the total expenditure target.

          The American Recovery and Reinvestment Act (ARRA), introduced in 2009, has been a game-changer for the US economy as it bought the nation out of the shock of recession. India too has adopted such expansionary policies in the past, and it is time is to revisit them. In fact, given the private sector’s reluctance to invest, the government should undertake time-based spending.

          However, while suggesting the enhancement of capital expenditure, the government must be mindful of putting its money where its mouth is. The reduction in corporate tax amidst fiscal concerns is a well-intentioned move, but with no targets for the corporates. Though a rollback is unwarranted, the government could look at making the tax cut, going forward, achievement-based, like investment in R&D, capex expansion, etc.

          Besides, in the backdrop of the corporate tax reduction, the government heavily relied on off-balance sheet borrowing. While dividends from the RBI have come as a succour, disinvestment targets have fallen short by 83 per cent. The net loss of CPSEs has been perennially increasing. It is also important that the government be more realistic while setting its targets under the economic situation going forward, to avoid sending incorrect signals to markets.


          The automobiles sector contributes more than 7 per cent of the GDP with a phenomenal spillover effect. The “cash for clunkers” scheme has played a catalytic role in advanced economies after the global financial crisis. Making it applicable in India will spur demand. In fact, the government could link the scheme with the sales of zero-emission vehicles.

          To pay heed to something like the ARRA would require long-term capital. The government should introduce attractive long-term infrastructure bonds which could be tax-free under Section 10 of the I-T Act, proceeds of which could be utilised for augmenting infrastructure. If private investments are failing to live up to the expectations of the government’s vision to boost infrastructure spending to the tune of $100 billion, then such an approach would be ideal.

          The gross savings as a percentage of the GDP has seen a linear decline from a high of 37 per cent in 2007 to 31 per cent in 2018. The limits on government saving instruments like the PPF, NSC, etc under Section 80C could hence be increased. Additional deposits into these schemes could help the government garner more resources for long-term projects.

          The real estate sector is extremely crucial for the economy as it directly boosts the consumption of core sectors like steel and cement. The Budget should consider segregating the ₹1.5-lakh tax benefit accruing from the principal paid for a home loan under Section 80C, akin to Section 24B on the interest paid on home loan. In fact, separate attention for these would be a win-win situation for the the government and the individual, rather than an overall increase in existing deduction under Section 80C limit.

          The tepid consumption narrative, especially amongst the middle and upper-middle class, should be resolved soon. In the personal income tax space, widening of the 20 per cent tax slab beyond ₹10 lakh would augment disposable income amongst millennials, thereby driving consumption. With a rise in income levels, slicing the 30 per cent tax slab into two categories would bring in greater equity.

          On the structural front, tax collection has not mirrored GDP growth. The tax-to-GDP ratio at 17.82 per cent has not been impressive for India, when compared to its peers. Bringing in the contentious agricultural sector, especially the higher end of the bracket, could be a bold step.

          The economy is on tenterhooks. The Budget could change the course of India’s fortune in the decade that follows. While the global economy is in a downturn, it gives India an opportunity to recuperate and better itself by improving industry and infrastructure and drive consumption.

          The writer is an economist with EXIM Bank, India. Views are personal

          Published on January 30, 2020

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