By Rana Kapoor
A lot rests on the upcoming Union Budget. Even as India has emerged as an investment oasis in a subdued global environment, the ripple effect of the recent global volatility has been felt in India as well. Investors are circumspect and domestic stock markets are feeling the jitters.
However, I believe that over the past year, the government has taken significant strides to revive the economy, and a job well begun is a job half done. The Union Budget 2016-17 presents a golden opportunity for Finance Minister Arun Jaitley to put in place medium and short-term wins to take the positive momentum and sentiment forward.
Growth impulses in India are looking better with the Manufacturing PMI at a four-month high and the RBI maintaining its accommodative policy stance.
In the current scenario, it will be of paramount importance to capitalise on the opportunity and create a ‘snowball effect’ from the momentum of successful of flagship schemes launched by the government, such as Make in India, Skill India, StartUp India, Jan Dhan Yojana and Mudra Yojana, which are sowing the seeds of a silent industrial revolution in the country.
Among my top recommendations for the budget are rationalising direct taxes, sops for startups, focus on the farm sector and key structural reforms in real estate, labour and MSMEs.
The banking and financial sector requires strategic repositioning for creating durable growth impulses. Focus on boosting financial savings, adequate performance linked recapitalisation for public sector banks, and a well-rounded Bankruptcy Code will set the stage for a quick revival in economic growth.
Boost for startups
Also, as indicated by Prime Minister Narendra Modi at the launch of the StartUp India programme, I expect some key sops for entrepreneurs and startups in this budget. We are witnessing a ‘startup revolution’ of sorts and this will be a significant leap forward. We must create innovation districts.
The first big thing is to create warehouses, incubators and accelerators and to make investing in them attractive they must be given infrastructure status; or even priority sector status.
Further, there should be some tax breaks given to investors in startups, because they are taking disproportionately higher risks. I would like to see some targeted tax incentives coming up in this budget, which will be a key step for startups to succeed.
Reviving savings growth
I believe that we need to revive India’s savings propensity through targeted measures in this budget which will improve inherent economic strength of the financial sector and reduce our dependence on foreign capital, thereby setting off a virtuous cycle.
Towards this end, it will be important to increase disposable incomes by relaxing personal income tax slabs to Rs 5 lakh from the current level of Rs 2.5 lakh – which could be a one-time correction and provide a fillip to household incomes, part of which will be diverted to financial savings.
Another key measure that can boost savings is to enhance 80C limits to Rs 3 lakh from current level of Rs 1.5 lakh. This will also deepen the mutual fund and equity markets.
Further, there is a need to increase inflation-adjusted post-tax returns for bank deposits, by reducing lock-in period eligible for tax rebate to 1 year from 5 years; and enhancing the threshold for mandatory TDS on interest income to Rs 50,000 a year from the current level of Rs 10,000.
Realism of budget arithmetic
Finally, against the backdrop of this month’s RBI Policy statement, there will be a strong emphasis on the quality of fiscal consolidation – and the pragmatism of the fiscal arithmetic.
It will be important for the Budget arithmetic to rely on a realistic disinvestment target, subsidy outgoes and tax collections, which will be encouraging from the investor’s perspective.
The author is MD & CEO, YES Bank and chairman, YES Institute.