When the Hon'ble Minister of Finance rises to present his fourth straight budget on the 1st of February, expectations will be running high from all quarters. On the taxation front, GST appears to be set to become a reality in the coming financial year. Continuing with the announcements in the FY 15-16 budget, a further cut in corporate tax can be expected. An increase in individual tax slabs can also give a boost to spending to counter the sluggishness following demonetisation.
The central budget is much more than an accounting exercise and these structural strikes can go a long way...
While the usual announcements on increase in credit availability in the agricultural sector, as well as spends on defence, infrastructure, health, education and other social sectors are expected, the time is also ripe for "structural strikes" that can truly transform India from a tortoise to a hare.
Incentivising private sector for job creation
Only 1.35 lakh jobs were created in 2015, and India is today grappling with almost zero employment elasticity. Even in the boom years of 2004-09, when GDP growth averaged around 8%, only 2.7 million jobs were created when over 55 million Indians joined the workforce in the same period. The government's skill development initiatives have so far failed to provide jobs. It is time to give a thrust to job creation on a mission mode. One of the ways is to give incentives— in the form of tax credits— to the private sector, especially to SMEs, for training and jobs to the workforce.
A similar push met reasonable success in the United States when the HIRE Act (popularly known as the Jobs Act) was introduced—10.6 million unemployed workers were hired within the first eight months of enactment of the HIRE Act.
Decentralised execution of Make in India
The Government had launched the Make in India initiative to raise the share of manufacturing in GDP from 16% to 25% and make India a manufacturing hub. Here, the state machinery needs to be empowered as the most important component required for the success of Make in India, given that labour, land acquisition and local infrastructure fall under the domain of state governments.
The state machinery needs to be empowered as the most important component required for the success of Make in India.
A precedent of one such decentralised mechanism exists in the form of the Cabinet Committee on Investment (CCI) that was announced in the FY 2013-14 budget. The Project Monitoring Group (PMG) under the CCI operated in a decentralised way and its members (including secretary-level officers) held meetings with different stakeholders in the concerned states while ensuring that the stalled projects got cleared quickly.
However, states in India face multiple issues, particularly bottlenecks at different levels when it comes to ease of doing business. For Haryana, labour unrest and lack of finance are key bottlenecks but for its neighbouring state Uttar Pradesh, long power cuts and poor connectivity are the greatest hindrances. Hence, a mechanism needs to be evolved where a rigid and centralised model is not imposed (like the present centrally sponsored schemes) but state-specific assistance is granted; the state machinery should have flexibility in prioritising the areas of work.
Exploiting and not "blackening" coal
At 300 billion tonnes, India has one of the largest coal reserves in the world. Yet in the past decade, the country has imported coal to the tune of over 1 lakh crore every year! World over, mineral-rich countries, such as in the Middle East, have exploited their resources to attain prosperity. India should not only look at becoming self-dependent in coal but should encourage commercial mining and exports at a massive scale. Even at 15% growth in domestic coal consumption, the coal reserves would last around 150 years. Cheaper coal would further give impetus to infrastructure creation as it is the primary raw material in the steel, cement and power industries.
The present government has shown extraordinary resolve in taking unconventional and bold measures in different facets of policymaking and governance. The central budget is much more than an accounting exercise and these structural strikes can go a long way in transforming the Indian economy for the better.