Covid-19 and its continued impact on the country and the health system has drained significant government resources in the last two years. Given the state of the economy and the geo-political environment, Budget is likely to be a watershed moment in providing a direction to India’s path of becoming a $5 trillion economy by 2025, Pradeep Narayanan, partner, BSR & Co (a sub-licensee firm of KPMG in India) tells Y V Phani Raj in an interview.
The government’s focus on domestic manufacturing is strategic and manifested through the announcement of Production Linked Incentive (PLI) scheme, which extends to a range of sectors such as Pharmaceuticals, Auto, Textiles and Steel. With the global chip shortage, focus is now being given to development of semiconductors and creation of an ecosystem in India with a budgetary outlay of Rs 76,000 crore.
It would be good if the government can expand the applicability of the PLI scheme to the following sectors:
Chemicals – There is a significant capacity expansion envisaged in the Chemicals sector given the ‘China plus one’ situation, and given their relevance on the input side in sectors such as Pharmaceutical, Textiles, Food processing etc.
Power generation – With India’s commitment to be a carbon-zero country by 2070 and being a founding member of the International Solar Alliance, the power sector particularly in the renewables space is likely to witness significant momentum. Currently, the PLI scheme is only available for manufacture of Solar PVs. It would be prudent for the government to come up with a larger PLI scheme encompassing different facets of power generation such as wind, hydel etc and the related power infrastructure thereon.
Agri-processing – The government can focus on agri-processing enlarging the scope of food-processing items. While currently, the PLI scheme is available for manufacture of food products such as ready-to-eat products, marine products, fruits and vegetables, the government can extend to items such as pulses, grains etc.
With the unpredictable impact of the third wave of Covid-19, the Budget is expected to primarily focus on public infrastructure, healthcare sector, public welfare (especially in rural areas) and agriculture infrastructure. Another area of focus would be capitalising financial institutions to ensure liquidity in the system. This will spur consumption and related economic activities. Also, to encourage more domestic and foreign investments, road infrastructure, power generation and real estate could be the beneficiaries.
Covid-19 had a significant negative impact on some sectors such as travel, hospitality, and aviation. To ensure revival of business and economy and support businesses in tough times, the government could possibly look at taking up these sectors as priority/ focus sectors by providing enhanced tax and fiscal incentives, relaxations. For instance, benefit of tax loss carry-forward in case of merger of loss-making companies should be extended to all sectors rather than restricting only to qualifying industrial undertakings.
Focus on MSMEs
MSMEs continue to be the backbone for economic growth and contribute a major chunk to India’s GDP. The pandemic has hit the MSME sector quite hard. It would be a good boost for such sectors if they receive an extension to carry forward tax losses from eight years to 10-12 years especially for the losses that would lapse in years 2021 and 2022 due to the adverse business impact of recent years. Also, reducing regulatory and compliance burden in aspects such as tax, audits etc. would reduce the cost of doing business for these enterprises, making them more competitive in the market space.
To boost the startup ecosystem, the government may look to liberalise the startup regime further in context of tax benefits, eligibility conditions etc. In addition, we could expect certain relief packages or lower interest on capital for startups.
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