By Kiran Mazumdar-Shaw
The Covid-19 pandemic has cast a gloomy outlook across the entire economy. Government coffers are depleting, Industry investments are shrinking, and citizens are being hit by inflation and job losses. Budget 2022 is an event that everyone is hoping will deliver good news and I wish the Finance Minister will not dash our hopes!
Let’s start with the wish list:
- Citizens want more disposable income through lower tax rates
- Industry wants lower corporate tax rates to afford investment for expansion
- Government wants more tax income to afford greater public sector spending and investment.
Are these at cross purposes or is there a way to address all of them?
Let’s start with tax rates for individuals. The total Direct Tax collected by the Government as in December 2021 is ₹9.45 lakh Cr, a 61% increase over the previous year which was at ₹5.87 lakh Cr. It is estimated that the FY 22 Indirect Tax Collections will exceed ₹22 lakh Cr. Recalibrating the tax exemption bracket from the current ₹2.5 lakhs to ₹5 lakhs and applying 5% Income Tax up to ₹10 lakhs will augment disposable income and spur consumption. The “loss” of revenue can be offset with increase in Indirect Tax from increased consumption and savings. The government needs to put money in the hands of the people because consumption in the economy has gone down. I believe consumption-led growth can push India to realize its aspiration of becoming a $5 trillion economy.
Corporate investing has sharply declined despite improved financial performance. The 15% Corporate Tax rate announced for greenfield investments need to be expanded to brownfield and R&D intensive companies. Additionally, announcing a cap on Corporate Tax Rate at 25% is the need of the hour.
The Government’s revenue strategy must rely on divesting of Public Sector assets, accessing capital markets for various PSUs and leveraging incremental revenue generation of a growth led economy. Air India’s growing losses are now behind us and I am sure the TATA Group will turn it around within 5 years.
Agriculture too needs to be strengthened through an optimal supply-demand growth model to be sustainable in a free market economy. Agritech is an urgent investment need that needs to be incentivized. I do hope the Budget will focus on incentives for adoption of new technologies for agricultural processing and digital technologies for monitoring and marketing agricultural produce and production.
India also needs to act now to stem the decline in the informal sector, which has seen huge job losses in the wake of the pandemic. This is evident in the decline in consumption in the rural economy. I believe the MSME sector is one sector that urgently needs fiscal incentives from this Budget.
Health needs to focus on managed care as a model that relies on insurance models to create closed loop systems that focus on reducing out of pocket spends (which are as high as 70% currently) and outcome-based reimbursement. India has underinvested in healthcare for many decades. As the pandemic has shown, such a situation is untenable. The government needs to raise public health spending to 3.5% of GDP to support healthcare transformation.
India needs to delete the digital divide by 2030 for which investment in digital education needs exponential investment. Ensuring that every school going child has access to a tablet and to computers will demand investment.
We need to focus on bringing back employment in the services sector, which has seen a huge impact. The faster we open up the economy the better it is for the economic revival. We should rely on our very good vaccine deployment to give us the confidence and comfort to open up the economy. It is indeed heartening to note that over 75% of the country’s adult population are now fully vaccinated against COVID-19.