After a pandemic-induced downturn in 2020-21, India’s economy is predicted to rise at a rate of 8-9 percent. The recent slight increase in the goods market is attributable to latent demand that was restrained throughout the outbreak. Budget announcements that aim to stimulate consumption, even more, will be welcomed. Such measures, when combined with key reforms and production-linked incentives for key verticals, bode well for capital spending, infrastructure, and investment growth. Increased crude oil costs and rising inflation can also be mitigated with smart policy measures.
Budget 2022 must prioritize policies that will spur investment and create jobs. Economic changes invariably result in the rationalization or improvement of criteria that improve the attractiveness of investments or the convenience of doing business. Reforms must move at a faster speed, and all political parties must finally grasp that solid economics leads to good politics.
Since the Right to Fair Compensation and Transparency in Land Purchase, Rehabilitation, and Resettlement Act of 2013, major investors have been irritated by land acquisition. Various projects that have the potential to boost the economy can become blocked during the land acquisition stage. Over the last decade, the cost of acquiring land has risen dramatically. Investors believe that it is past time for this statute to be reconsidered and that this expectation must be addressed in the budget.
During the epidemic, tinkering with labor regulations was at best a stopgap approach. Stringent restrictions have made it difficult for enterprises to withdraw, which has resulted in the formalization of labor. Salary and wages, social security, health, occupational safety, and industrial relations are the four areas in which the government must finish the rationalization and simplification of 44 central laws. In addition, a model unified labor legislation must be prepared for time-bound adoption to replace several old state-level laws.
India’s trade-to-GDP ratio needs to improve. Import taxes that are unrealistically high in order to safeguard domestic industry end up encouraging local products, even if they are of worse quality. They have a negative impact on large-scale exports of superior and lower-priced products from India when looking at the complete value chain of manufacturing. Negotiating and securing trade agreements with key global economies is critical. A statement of intent in the budget would be a crucial signal of confidence for investors.
Given that India spends roughly 1.5 percent of its GDP on public healthcare, challenges in managing healthcare have risen time and time again. Similarly, India’s public spending on education and skill development amounts to only 3% to 3.5 percent of GDP. India’s human development index ranking is significantly down due to healthcare and education. Government spending on health and education must be at least 3% and 6% of GDP, respectively. On these fronts, the budget may undoubtedly send a message.
India invests just 0.69 percent of its GDP on scientific research and development, the lowest among the United States, China, South Korea, the BRICS, and the OECD countries. This should be gradually increased to 3% of GDP. Intellectual property and patent development are essential for a country’s economic worth to grow. India’s success in this area would continue to elude it unless it approaches scientific research with the seriousness it deserves. Let this budget signal a shift in funding for scientific research, the majority of which takes place under government auspices.
As Indian courts lack the knowledge and bandwidth to handle contractual disputes, measures for their expedited resolution must be addressed in the budget. Long-term capital gains tax breaks could be extended to investments in new businesses. Finance Minister Nirmal Sitharaman may also look into extending the deadline for new company tax benefits from 2023 to 2025. Given the state of the economy, more tax breaks for small firms will be welcomed. A higher disinvestment aim would undoubtedly be a positive step.
In light of Prime Minister Narendra Modi’s recent announcement in Glasgow about India’s environmental obligations, a tax break for corporations investing in green technologies may be explored. Tax incentives for the electric transportation sector should also be announced by the Finance Minister (FM). The budget should also emphasize the government’s commitment to infrastructure initiatives, including increased funding for roads, highways, affordable housing, and smart cities. Allocations for MNREGA and free food grains for the needy would need to be increased in the social sector.
While India’s ease of doing business has improved, we must soon get into the top ten countries on this metric. Furthermore, investors, particularly those from outside the country, want regulatory predictability in the country. If the Finance Minister solves these issues in her Budget speech, India will become a more attractive location for multinational manufacturing companies considering shifting a portion of their supply chains away from China.