In the backdrop of a COVID-battered economy making steady comeback amidst inflationary pressures and supply-chain disruptions on account of the global geo-political tensions, the Budget 2023-24 has the cumbersome task of balancing growth and ever-increasing price rise.
The upcoming budget needs to continue with its emphasis on Capex in infrastructure. Considering the multiplier effect, unwavering capital expenditure toward building roads, ports, airports, and other infrastructure is essential for improving logistics performance within and beyond the country. This will be beneficial for manufacturing as well as agri-sectors. Besides, tax incentives on capital expenditure towards expansion, capacity utilisation, and integration of new-age technology are also welcome.
In 2022-23 (B.E), capital expenditure was pegged at 19 per cent of the total budget size. Considering the further need for Capex and its multiplier effect, capital allocation is to be augmented to 22-23 per cent. The higher allocation should finance roads, transport and highways, railways, communications, health & family welfare, defense spending, and urban development. This will create demand, more cash-flows, and higher employment opportunities.
In the changing dynamics of the Indian economy, ‘the energy industry,’ has emerged as a critical sector and therefore, adequate resource allocation is to be made. Since India has been ramping up its efforts towards a greener and more sustainable economy, energy industry expectations are naturally inclined towards reaping maximum benefits to support the cause.
The government may consider ASSOCHAM’s call for a uniform 15 per cent corporate tax. Such a competitive corporate tax can boost the country’s ambition of becoming a manufacturing hub. This could incentivise global MNEs to consider India as their headquarters or regional hub. A large domestic market and massive talent pool make India a favorable destination.
The climate change threat looms large, affecting people as much as their sustenance. Renewable energy requires a significant boost. Tax incentives or exemptions for companies installing solar rooftop power systems can provide the much-desired momentum to the solar power shift. This is in line with India’s keenness on moving towards a greener and more sustainable economy.
Tourism has bounced back in recent times. The hospitality industry is steadily recovering. Given the employment potential and multiplier effect of this industry, government should introduce measures to help it grow further. Towards this end, GST rate rationalisation from the present 18 per cent to 12 per cent may prove beneficial. Similarly, extending the loan repayment period for the sector to 10 years will also provide adequate stimulus.
To enhance capital spending potential of the states in India, the Union Government should transfer some part of the cess and surcharges to the states.Last but not the least, measures like enhancing income tax exemption limits will boost consumption by leaving greater disposable incomes in the hands of the consumers.
With a high investment-to-GDP ratio (at 33 per cent in FY23 versus 30.5 per cent in FY21) with an existing incremental output ratio, GDP can very well grow at 8 per cent while keeping fiscal deficit and inflation in check.
(Dr Mohanty is Professor of Finance, XIMB, XIM University)