Budget 2020: In the current environment, the sole agenda of the Centre should be growth, even if it comes at the cost of fiscal prudence. With monetary policy being largely ineffective and given the delayed impact of structural reforms, fiscal expansion is probably the only way left to boost growth at present.
Quick fixes are needed to address two major drivers of the slowdown – slowing demand and stagnant private capex.
Early resolution of crises in sectors like real estate, telecom, power and non-banking financial companies (NBFCs) shall help boost consumer and business confidence. We expect serious steps for these sectors, particularly for real estate due to its deep linkages with the core economy and the financial sector.
Income tax cuts for individual taxpayers shall drive an increase in disposable incomes and discretionary spend. Given the poor fiscal position, the government will need to shun fiscal prudence in the near term, something it has been reluctant to do so far. Fears of fiscal expansion leading to rising bond yields are exaggerated and can be countered through OMO from RBI.
Small businesses are the backbone of the Indian economy, providing employment to millions. This segment is reeling under the impact of demonetisation and GST. Most small businesses are run as proprietorships and have not benefited from corporate tax rate cuts.
Income tax cuts for individuals and access to funds at a lower cost will provide a level playing field to these businesses that reflect the true spirit of Indian entrepreneurship. For private capex, the corporate tax rate cut of September 2019 coupled with an improved demand outlook should act as a strong driver. More steps are needed to ensure a sustained revival and to attract global manufacturers amidst the ongoing US-China trade war. Reforms in areas like Land and Labour need to be hastened.
The government is in the process of consolidating 44 labour laws into four broad codes. While the Code on wages has already received Parliament approval, another Code (OSH – Occupational Safety, Health & Working Conditions) is to be tabled in the coming Budget Session. This code proposes a single registration for an establishment, instead of six separate registrations as is required at present. The other two codes on social security and industrial relations are also in the works and should be tabled shortly. We believe that the upcoming Budget shall have measures to put the economy in a sustainable high growth orbit.
(The writer is chairman, Bajaj Capital)
Source: Financial Express