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A 10-Point Economic Plan To Make 2016 India's Year

18/01/2016 2:59 PM IST | Updated 15/07/2016 8:25 AM IST
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India has emerged as one of the fastest growing economies in the world, with GDP growth at 7.3% in 2014-15. As Finance Minister Arun Jaitley noted recently, our nation is firmly on the path of economic revival. I am also confident that India is well positioned to withstand near-term headwinds and volatility in global financial markets due to reduced external vulnerabilities, a strengthening domestic business cycle and a supportive policy environment.

The primacy of economic development in governance and progressive reforms to facilitate investments has been the hallmark of the Narendra Modi-led government. I am confident that the right fiscal action, coupled with the turnaround in the global economy, will boost India's economic and industrial growth to the next level, and make 2016 India's year.

Here are 10 recommendations that could be instrumental in this regard:

1. Enhance savings

Adopt the structural GEAR (Growth, Efficiency, Attractiveness, Reach) approach, recommended by YES Institute, as elaborated below, to augment savings rate in the economy:

• Enhance economic GROWTH to increase per capita incomes: Increase disposable incomes by relaxing personal income tax slabs to Rs 5 lakh vs. Rs 2.5 lakh (a one-time correction, and thereafter inflation-linked indexation every three years).

Financial savings must be promoted by improving tax incentives (enhancing 80C limits to Rs 3,00,000 from current level of Rs 1,50,000)...

• Focus on EFFICIENCY in financial transactions: Use of plastic currency and e-transactions (via internet/mobile) to improve ease of transactions and enhance saving propensity.

• Make financial savings ATTRACTIVE: Financial savings must be promoted by improving tax incentives (enhancing 80C limits to Rs 3,00,000 from current level of Rs 1,50,000), increasing their inflation adjusted post tax returns (reduce lock in period eligible for tax rebate to one year from five years, enhancing threshold for mandatory TDS on interest income to Rs 50,000 a year from Rs 10,000 currently), and also by introducing innovative products and diversification (level tax treatment for NPS and EPF).

• Expand financial REACH: Converting India Post into Postal Bank of India, a full-fledged payments and savings bank, to leverage its rural penetration and reach.

2. Investment revival

It is mission critical to ensure significant investment pickup in 2016, by prioritising project clearances and providing targeted measures to revive the farm and infra sectors.

• Consider an IPO for Indian Railways' star e-commerce entity IRCTC, which will be valued at least USD 5-6 billion today, to free up funds for significant Govt. Spending.

• Revitalise PSU banks on priority basis by providing capital and sustainable short- to medium-term solutions to asset quality by addressing underlying issues.

• Large cash-rich PSEs should be allowed to buy out projects via transparent auctioning.

• Explore the land pooling model for PPP and SEZ projects.

• Incentivise takeout financing for infra projects and float Smart City Municipal Bonds.

• Grant infrastructure status to hotels with capital investment of Rs 25 crores (lowered from the presently very high Rs 200 crores), as well as for educational institutions and hospitals in order to boost these sectors as well as for Smart City acceleration.

3. Specific measures to revive the farm sector

The farm and allied sectors have borne the brunt of several droughts and there is an urgent need for short- to medium-term measures:

• There must be significant enhancements to existing schemes such as Pradhan Mantri Krishi Sinchai Yojana, Rashtriya Krishi Vikas Yojana and Pradhan Mantri Gram Sadak Yojana to boost the overall rural economy.

The farm and allied sectors have borne the brunt of several droughts and there is an urgent need for short- to medium-term measures...

• The micro-irrigation sector should be given infrastructure lending status.

• Payments made by banks to all service providers working for financial inclusion initiatives (under PMJDY and/or other FI services) should be exempt from service tax liability irrespective of location and/or area of operation of the service provider and customer served.

4. Export promotion

• Extend the GIFT City concept to Mumbai and possibly Noida.

• Encourage states to form Export Promotion Centres with focused product designation.

• Exempt SEZs from application of MAT and DDT (pending for very long).

5. India Business Unit (IBU) tax treatment

• Exempt IBUs from withholding tax.

• Grant clarity over exemption from TDS for any income booked in IBUs in the wake of the five-year tax holiday granted.

• Extend the five-year tax holiday to 10 years.

6. Affordable Housing (AH) requires thrust for growth

Given the government's aim to provide housing to all citizens by the year 2022, the following efforts are required to eliminate the estimated deficit of 11 crore housing units:

• Grant infrastructure status to the housing sector, especially Affordable Housing (AH) to open additional funding avenues, in addition to direct tax benefits and easy finance availability.

• Place AH under PSL classification, not to be bunched up with real estate for overall credit cap bulk limits.

• Create a zoning process -- demarcate land for AH development, designate areas where housing-friendly zone rules apply with higher FAR/FSI, relax density norms/TDR for effective use of land.

7. Road sector: Removing impediments

• Reduce time for 100% exit after commercial operations date (COD) for road developers from two years to one year, without imposing any condition or reinvestment requirement. This will facilitate unlocking of value of road projects by developers.

To actualise India's ambition of mainstreaming solar and wind energy, there is an urgent need for tax sops for the sector to go up.

• Lay out a clear policy for premium rescheduling. At present, while NHAI has already decided on deferment of premium for projects which are under stress, the selection of such projects is discretionary and therefore warrants a standardised approach for expedient clearances.

• Adopt a different mechanism to acquire land for road projects. Set up a separate wing within NHAI to work on land acquisition in consultation with states. NHAI should award projects only when substantial land parcels have been acquired.

8. Specific measures to boost Startup India

• To complement the government's emphasis on entrepreneurship, there is a need to reduce direct and indirect taxes on all startups to improve their cash flows. Additionally, there is a need to formalise and streamline the processing of crowd-funding to boost Indian startups.

• The government should also establish an Innovation District in Lower Parel-Mahalakshmi area in Mumbai to nurture and boost design and innovation. India's equivalent of Silicon Valley should be created in the Mumbai/MMR, Pune and Nasik triangular belt.

9. Sops for renewable and green energy sector

To actualise India's ambition of mainstreaming solar and wind energy, there is an urgent need for tax sops for the sector to go up. Further, there must be a thrust on rooftop solar projects via tax incentives and raw material subsidies.

10. Serviced from India

• Adopt a two-pronged strategy to leverage India's strength in services by a) reducing tax distortions, and b) allowing extensive foreign investment and optimising India as the services hub of the world.

• Remove customs duty for all equipment and spare parts for hospitals to promote medical tourism; consider sales tax exemption on MRO (maintenance, repair & overhaul) operations for airlines to avoid cascading tax impact. (MRO operations in India are 50% more expensive than Dubai or Singapore.)

• Expedite development of Mumbai as an International Financial Centre.

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