To move in the direction of economic growth despite the slowdown, the Centre should enhance consumption, increase capacity utilisation in the factories, create employment and enhance the quality of social infrastructure, said Saket Dalmia, President, PHD Chamber.
In an interview with BW Businessworld on Union Budget 2023-24, Dalmia said that there is a need to percolate ease of doing business at the factory level, rationalisation of cost of doing business and taxation, state of art infrastructure and enhanced incomes in the agriculture sector.
As the entire world is bracing for economic slowdown and possible recession, what do you think were the top policy priorities before Prime Minister Modi as well as Finance Minister Nirmala Sitharaman?
Global growth is predicted to continue to fall and will get further impacted by the pressures from the war in Ukraine, the strengthening of the dollar, the high inflation in energy and food prices and sharply higher interest rates. The IMF Chief Economist has said that for many people across the world, 2023 will feel like a recession and therefore it’s critical that we focus very strongly on economic growth.
In this view, I think the top priorities before this government should be 5 areas which could set India in the direction of economic growth despite the slowdown- enhance consumption, increase capacity utilisation in the factories, create employment, enhance quality of social infrastructure and strengthen economic growth.
What do you think Prime Minister’s vision was in terms of this Amrit Kaal of 25 years and what are the things the budget should reflect for India’s growth trajectory?
The Prime Minister’s vision for the next 25 years of Amrit Kaal is to strive towards making India a developed economy and a global superpower by 2047. PM Modi has set the priorities for the economy whether it be in terms of supporting the MSMEs sector to scale up, the startup ecosystem to boom, kickstarting the sunrise sector or measures taken for digitalisation
Some of the issues budget can reflect upon given today’s global and domestic economic scenario are:
First, increased consumption led to a demand by increasing the per capita disposable income. In other words, increasing the tax rebate benefits consumption expenditure and encourages the consumer to spend more on long-term consumer durables or real assets.
Second, boost exports by leveraging India’s strengths. If the government wants to strive towards Atmanirbharta in manufacturing, it must extend PLI schemes for MSMEs which are into manufacturing as well. India has a huge import bill, and a dedicated PLI will be an effective option to reduce it, as this would cut imports and also create more jobs.
Third, investment as a percentage of GDP needs to be boosted. Currently, it accounts for around 30 per cent of GDP down from 34 per cent of GDP in 2011. Also in the total investment, private sector investment is yet to take off.
Even though the government has done consistently well in ease of doing business along with attracting investment via Make in India. However, more focus needs to be done to ensure a conducive business environment, which can spur private investment. In this regard, PHDCCI expects the decriminalisation of offences under numerous laws and regulations that businesses have to comply with. We also expect a substantial reduction in the cost of doing business, especially at the MSME level.
Income taxpayers are pinning high hopes on the Centre to announce some tax-related relief or change in income tax slabs. What are your thoughts on this?
The salaried class is pinning high hopes on the current government, to introduce some tax-related relief or change in income tax slabs. Taxpayers are anticipating that there is a need to raise the basic tax exemption limit from 2.5 lakhs to at least 5 lakhs or more.
Also, uniform capital gain taxation is also something that is much needed and needs to be addressed. With different asset classes available to invest in India, every asset class has a different capital gain structure, which often makes it difficult for taxpayers to assess their tax liability on the capital gains incurred.
Do you think the government should enhance the income tax exemption limit from the existing Rs 2.5 lakh?
In the old tax regime, income is exempt from tax up to 2.5 lakhs, and assesses does not have to pay any taxes up to the income of 5 lakhs as they get an exemption of 12,500 under section 87A of the Income Tax Act. So yes, this move can be implemented without affecting the tax collection alongside providing some relief to the low income earners.
This step if anyhow fructifies, do think can leave more disposable income in the hands of consumers.
This move if implemented can certainly free the working capital blockages in terms of TDS. Thereby, it can provide more liquidity to consumers which in turn can increase the consumption led demand along with tax burdens for such assessments.
What are steps required to boost consumption and also promote investments which may also lead to economic recovery?
To enhance the momentum in private investments, there is a need to percolate ease of doing business at the factory level, rationalisation of cost of doing business and taxation, state of the art infrastructure, and enhanced incomes in the agriculture sector.
To enhance the consumption in the economy, there is a need to increase the tax rebate benefits for consumption expenditure. Tax rebate on purchase of self-occupied house is given Rs.2 lakh only since the last many years.
This needs to be enhanced with the wider scope of consumption expenditure such as purchase of more than 1 house, purchase of car, along with other durables. Consumption expenditure rebate must be enhanced to Rs. 5 lakh per annum. This will not only enhance the aggregate demand in the economy but also attract private investments, increase capacity utilization of the firms and create enormous employment opportunities in the economy.
To enhance capacity utilisation in the economy though consumption is the most significant ingredient, reduced costs of doing business at this point is also an important factor which increases the efficiency of the enterprises and enhance the production possibility frontiers.
What are your expectations from the Union Budget as far as Indian economic recovery is concerned.
Apart from all the arguments given above there should be 3 areas apart from consumption that are crucial for economic recovery. At a point where India is getting back to the track of economic recovery at a time when the global recessionary crisis seems to be closer, we must build capacity and strive towards Atmanirbharta. The 3 areas being:
Investing in state of art Infrastructure- Infrastructure is one of the crucial sectors that propels the overall growth and development of the Indian economy. The increased spending on infrastructure will give a multiplier effect to rejuvenate the aggregate demand in the economy. We suggest that infrastructure investment in the economy must not be less than 10 per cent of the GDP.
Strengthen the MSMEs- continuous support to MSMEs and Startups is required to help them rejuvenate their growth after the daunting impact of pandemic COVID -19. It is suggested that the value chains of MSMEs should be further enhanced, hassle free disbursements of loans at affordable rate of interest should be focused and the cost of doing business in India should come down.
Focus on education and skill development in order to reap the dividends of our demographic advantage.