Budget For The “Decade Of India”

The upcoming Union budget has already set high expectations from the various stakeholders. This is at the backdrop of Covid-impacted economy, rising inflationary trend, impact of pending decision on loan-interest-on-interest moratorium, sentiments of banks to lend, mood of the borrowers to restructure their loans or even simply borrow, need for public sector banking recap, Covid vaccination and other expenses ahead, potential realisation of partial or full stake sale in specific public sector enterprises in the fiscal ahead and narrower fiscal space for the government to manoeuvre further.

Any crisis is a wonderful opportunity to bring in the big-bang reforms. It is also the apt time to relook at all current policies;  and shed those which don’t have any more impact or influence on economic growth or social development.

The theme of this upcoming budget could very well be “Repair & Reform, to rise again”. It would be ideal to have a “India 2030 plan”, with the upcoming fiscal laying the foundation for it. 

To accommodate opportunities for the large youth demographics that we have, and to ensure sustained livelihood for all, we need to improve both physical (geographic) as well as social infrastructure. This would require heavy capex that could well set in motion, the process of infra-building; if they are out on fats-track development, it could also mean (front loading of) government-spending getting local economy back into circulation. With Covid learnings, the wish-list from the budget also includes increased spending on building / upgrading the public healthcare value chain. To enable all of these, we need a robust & stable banking and finance sector.  

Policy ideas around Banking, Financial services & taxation:

Taxation 

Simplifying GST : The GST is work in progress, and has 8 different GST rates along with 22 different rates of compensation cess. Simplification of the GST system will improve compliance. 

Introduce GST credits in demat-form; this could be used as collateral by banks against such credits due. Since the credits are from GoI, banks will be comfortable using it as quasi-sovereign guarantee. Would help SME / MSME access working capital from banks. 

Tax holidays or incentives, for investments into hospitals & diagnostics centers could spur increase in density of healthcare facilities. The tax-break can be of higher percentage, if the infrastructure being created is in Tier 2/3/4 geographies. This could make up for the low level of current government spends in the healthcare space.

Banking & Financial services 

Develop a revolving 10-year Vision statement for each of financial services regulators in terms of their approach and ability to develop their sector and add to the GDP growth.

Encourage global corridor bilateral banking deals : for example, have a INDO-UK corridor where UK banks in India can tie up with Indian banks to offer special rates / co-shared credit deals to UK firms operating in India; this can open up pools of debt which otherwise would have been sucked up domestically. Similar tie ups with such large markets including EU, US, Japan, Australia would help.

Use National Housing Bank (NHB) as a vehicle to raise debt in global markets - USD 10 billion with 20 year tenure bond for affordable housing refinance; domestic debt market is weak and won’t be able to solve for need for long term financing needs for housing finance.

Allow for FinTech’s  to grow with India-digital-stack framework; their ability to bring patient capital and consumer-focus products has been higher than traditional BFSI. Their ability to value-add with consumer reach and simplicity should be leveraged. With adequate supervision and those platforms which showcase compliance and patient capital, they can be converted into full-license bank / insurance company / asset management firms. Keep the rules about ultimate beneficiary ownership rules strict, to serve our nation’s strategic objectives. 

Create a separate section of “Ease of doing business” (EDB) in DFS as the finance sector helms most of the investments (both capital and debt); each of the industries that have equity capital being brought to scale the businesses, it is the financial sector that makes the debt possible. It would be useful to have a EDB section being the fulcrum of all policies being simplified to make investments into India a smooth effort; and being the nodal section for all the relevant data on investments, related issues and coordination with other ministries for fast tracking resolutions needed for proactive and progressive investment climate.

Work on bringing land records on digital-demat-format with a Universal Land Information (ULI) format that GoI can put together. Since land is a state subject, we can have states use that ULI format. This can be linked not just for current data captured like address, pin code, ownership etc, but more importantly with GPS coordinates. Over a point in time, this can reduce land-encroachment issues. If such information is also linked to PAN & Adhaar, it can reduce Benami holdings quickly. Banks and HFCs can reduce frauds if such a digital information about realty ownership is available. 

To increase better insurance protection coverage and to improve the insurance penetration in the country, it needs more tax incentives as people see insurance as a last-resort product and don’t spend on adequate & timely coverage. Increase income tax deduction amounts for those opting for insurance protection products (not for investment products of insurance firms). The average cost of insurance has increased over the years and as our population ages, we need to ensure affordability and incentive for the citizens to continue with insurance coverage.

India, as an economy, is under-banked; to address all types of consumer segments across India & Bharat, we would need specialised banking licenses with their own business models (and not aping the “Universal banking” concept). For example, micro finance companies became SFBs. This idea lends itself to creating newer categories to ensure their affinity consumer groups (like SME, MSME, housing, Infrastructure) are served better.

Like UIDAI brought in Adhaar framework, constitute a financial-services integrated real-time supervision framework authority, that could assist all the regulators in the Financial Stability and Development Council. This framework could use contemporary digital tools like RegTech, supervise-tech and data sciences for proactive and preventive supervision & decision making and cover all the financial entities that are supervised by the multiple regulators under FinMin.