The aspirational Budget of Nirmala Sitharaman last year was hamstrung by Covid-19 rescue operations overtaking all priorities. She, however, deserves credit for building confidence through the Atmanirbhar Bharat Abhiyan schemes. The year ahead though, is likely to pose more challenges. Global institutions like the World Bank, the IMF and the ADB, and rating institutions like Nomura, ICRA, and CRISIL, expect a muted recovery next fiscal.
Consumption as a driver of growth may not get triggered and the fear of inflation raising its ugly head along with high unemployment rates are factors to reckon with in 2021-22. With a resurgence of Covid in the UK, Sweden, Australia, etc., a large segment of the services sector will continue to be hit. The farmers are at their wits’ end over the new farm laws, which has been caused more by politically-backed misinformation than on economic grounds. The Budget should assuage their fears by backing the assurance on the MSP (minimum support price) with the required resources; given the fiscal challenge, this is going to be a daunting task.
In this scenario, the Budget expectations are likely to be pretty high. The following is a 12-point agenda that the Finance Minister could consider:
Increase share transaction tax to 1.5 per cent because such transactions are speculative in nature. This would boost liquidity to the exchequer.
Reduce corporate tax to 15 per cent uniformly.
Banking is still at the tipping point, despite large-scale mergers of public sector banks. The nervousness in lending continues, and frauds and credit risks in banks are rising.
Igniting risk appetite, particularly in PSBs, is critical on three counts:
(i) The global financial architecture is shaky. Depending on forex reserves as a resource will, therefore, be unwise
(ii) Domestic markets will take time to recover from the Covid blow.
(iii) Investments in bonds, even in the best of the firms, may not pour in due to the YES Bank episode and collapse of some mutual funds.
There should be no further recapitalisation of banks. ‘Accountability with responsibility’ must be the new mantra, and this can be effected if the officials concerned are fully exempt from questioning by the CAG and the CBI if there were no irregularities in annual audits for a continuous period of three years of the accounts they handle.
It is also desirable for banks to do away with the committee approach for lending below ₹25 crore per borrowing entity, and one General Manager should be held responsible for a portfolio of ₹500 crore.
Creating bad banks is no solution for the NPA imbroglio. Reckless lending may only increase.
The health budget needs to increased to a minimum of 7 per cent of total Budget expenditure, of which, half of it should go for capex.
Reduce regulatory costs such that the cost of compliance will be less than avoidance/evasion.
GST for all manufacturing enterprises needs to be trimmed to just 5 per cent.
All micro and small enterprises may be incentivised for meeting digitisation costs of up to ₹10 lakh (both capex and software together).
The best of education should be within the reach of common man. Consistent with the National Education Policy, incentivisation of the private sector should stop.
Levy tax on agriculture income above ₹25 lakh annually.
Labour costs in agriculture have gone up steeply. Large scale mechanisation will wean away labour from the farm sector if the capex in agriculture is incentivised with NABARD extending credit at no more than 5 per cent per annum simple rate of interest.
The writer is an economist and risk-management specialist