With Budget 2021 knocking on the door, what should be the focus? What is the way forward for the country?
After an extremely challenging and active year in terms of policymaking, the government is now focused on Union Budget 2021-22. Over the course of last year, the government has done a commendable job in terms of balancing the immediate challenges at hand and at the same time tending to medium-and long-term growth imperatives. We hope to see a continuation of this approach in the forthcoming Union Budget 2021.
The recovery in the economy is progressing satisfactorily, however, the two key drivers – private investment and consumption continue to be a matter of concern that warrant continuous attention. The buoyancy seen in consumer spending on the back of pent-up demand from the lockdown period as well as festive season must not be taken for a sound revival in aggregate demand. Likewise, unless the capacity utilisation levels improve further, fresh investments may not be commissioned. The upcoming budget 2021 will have to address both these factors i.e., demand and investment. Some of FICCI’s suggestions in this context are shared below.
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First and foremost, there is a need for putting more money in the hands of consumers through measures such as relaxation in the terms of PF contribution for employees, the introduction of a three-year holiday for ESI contribution and an interest subvention on housing loans.
Also, it is critical to maintaining the focus on employment generation and infrastructure. Infrastructure has the potential to generate significant employment opportunities especially for the unskilled workers and can move the economy on to a sustainable growth trajectory. Projects under the National Infrastructure Pipeline should be front-ended with the aim that 50% of them should be completed in the next two years. The Government must also consider introducing an MNREGA-type scheme for the Urban poor by involving them in public works projects.
One of the biggest take-away from the crisis has been the importance of the role of innovation.
Second, a way to increase investment is schemes like PLI. We need such schemes in more sectors. Along with that conditional financing to states that complement the incentives offered by the central government in high priority areas with their own supportive measures would be a good step for the growth of our economy.
Third, even though some sectors are already headed back to the pre-COVID operating levels there are sectors like hospitality, aviation, travel and tourism which continue to remain under severe stress. Industries that are recovering need to be supported to accelerate their growth and those which are still struggling need policy support to get back on their feet. We expect to see a set of stimulus measures for these sectors in the upcoming Union Budget 2021.
While these are some of the areas that need immediate attention, we should continue to bridge the existing gaps and strengthen India’s position amid this new normal.
India lags in Research & Development. Our annual spend on R&D as a percentage of GDP is significantly lower when compared to similar indicators for countries like China, Israel, and South Korea.
One of the biggest take-away from the crisis has been the importance of the role of innovation. Be it an economy, industry or even an individual business, it is clear that cutting-edge R&D is crucial to remain globally competitive. As a nation, we should be able to continuously take lead in developing new-age technologies and solutions.
Furthermore, we need more and more local solutions to address our developmental challenges in areas of water, sanitation, healthcare, education, etc. Thus, start-ups whose businesses are based on the use of Artificial Intelligence, Machine Learning and other future digital technologies must be incentivised in the Budget 2021. Seamless access to robust wireless internet services would also be critical to their success. We hope to see a sizable allocation of funds to the Prime Minister’s Wi-fi Access Network Interface project.
India lags in Research & Development. Our annual spend on R&D as a percentage of GDP is significantly lower when compared to similar indicators for countries like China, Israel, and South Korea. Moreover, investment in R&D by the private sector is below desired / optimal levels. An appropriate incentive structure can encourage greater Research and Development activities by the industry. A weighted tax deduction of 200% for in-house R&D facility should be re-introduced.
Lastly, we need to keep up the transformational work that we are seeing with regard to the social sector. In fact, this was one of the key tasks (along with demand creation and greater infrastructure spends) reported by FICCI members in a recent pre-budget expectations survey conducted by us along with Dhruva Advisors.
We look forward to increased social sector outlays in the Budget 2021. Government has already envisaged increasing public spend on healthcare to 2.5% of GDP (from around 1.3% currently). We urge the Government to start spending an extra 0.5% of GDP every year on health for the next five years.
Furthermore, it was heartening to see the Government implement the new National Education Policy – this marks an important step towards enhancing private participation in the sector. However, much more needs to be done to achieve this objective. For instance, for-profit Higher Educational Institutes (HEIs) should be allowed to be set up and their fees are determined by market forces.
FICCI hopes that in the Union Budget 2021-22 the government will continue to take steps towards building a New India and resort to a much stronger positive signalling that will revive the animal spirits and move us in the direction of a US$ 5 trillion economy.
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(Dilip Chenoy is the Secretary-General of FICCI, the largest and oldest apex business organisation in India representing over 250,000 members.)
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