While the global news is currently focused on the oil free fall and predictions of $20 per barrel, India is yet to pass over ₹10 per litre reduction in the price of diesel. On the other hand, gas subsidies seem to be a thing of the past. The inflation numbers suggest moderation, but a visit to the market suggests a contrasting perspective. Macroeconomic gains are wrested from the common man’s income, justifying the removal to be “in the nation’s best interests”.
This brings us to the premise that India is a land of taxes. We pay taxes on consumption, savings and income. For example, we pay indirect taxes in the form of excise duty, import duties, central sales tax, and even an entertainment tax on watching a cricket match. This year’s Budget must accelerate reforms, since this is what will make or break the NaMo government’s image of a development-centric progressive one.
On the microeconomic level
Basic exemptions should be hiked to at least ₹3 lakh per annum, or at the very least be linked to inflation. The former would only lead to a minimal loss of ₹3000 crore per year. The additional gamut of exemptions should be upgraded as ₹100 per child as education allowance is extremely antiquated.
Hike in investment limits in order to promote greater equity investments by the average Indian. For example, a ₹30,000 p.a. limit for funds invested in ELSS, as well as a ₹50,000 deduction for Mutual Fund investment in National Pension Scheme (NPS), and a deduction for SIP investors could be introduced. Additionally, NPS should be tax exempt in order to make it at par with PPF schemes which will boost national savings.
Home loan interest should be deductible even if the construction concludes more than three years later, if the delay is from the builder’s end. Furthermore, tax benefits on home loan insurance in order to promote the same, especially in the aftermath of the Chennai floods.
On the corporate level
The Budget should ideally do away with retrospective taxation in order to boost investor confidence. A reduction in the minimum allowance tax, and the eventual implementation of GST are other measures that need to be speedily rolled out.
Inefficient PSUs reduce our GDP by at least 1.5 per cent per year. Disinvestment is a soft option. A comprehensive roadmap for their privatisation, and autonomy of their management, must be ensured.
Industrial reforms such as streamlining and coordinating procedures and the ultimate elimination of delays are extremely important. More importantly, development of finance institutions and foreign investment from the US and China should be monitored and protected by an empowered mechanism.
On the social level
Agriculture must be promoted through setting up of infrastructure. The markets should be allowed to operate independently and the minimum support price must be decided by a panel of experts. Speedy reforms in administration, institutions and public autonomy are of utmost need in order to facilitate ease of doing business.
Further amendments must be made to the Electricity Act 2003 and finding ways of cross-subsidy elimination by states. Infrastructure bonds must be reintroduced in order to raise funds quickly for development and to promote personal savings. Greater support for realty development on the suburbs in order to provide housing at affordable rates is required. Additionally, cheap loans could be introduced in order to promote the “Housing For All” scheme by 2022.
Transformation is essential. The state must change its direction from statism to enterprise under independent regulation, if the nation is to reach its true potential. A slew of reforms need to be implemented on a war footing. Budget 2016 must provide the right funds and the right policies for this to happen.