Need More Public Investments
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The first advance estimate for GDP for 2017-18 by CSO has pegged growth at 6.5 per cent. While this marks a slowdown from the previous year when growth was 7.1 per cent, it is not entirely unexpected. With the economy having undergone two major structural transformations — demonetisation and GST — a dip in growth during the initial transition phase was anticipated. So, while the government may have to calibrate its finances for the current year given the less than anticipated growth, the outlook for next year should provide some comfort.
There is a need to continue with public investments, especially in areas like rural infrastructure and affordable housing. With companies saddled with excess capacity of close to 30 per cent, we need a large public infra-focused capex plan to drive demand in core industries, which in turn would help other industrial segments across sectors.
Adequate emphasis should be laid on agriculture and agro-processing sectors. Agri-productivity trends in the economy are a matter of concern. Marketing of agricultural produce is still highly regulated. While prices of agricultural inputs have been on the rise, incomes of farmers have not seen a similar increase. Recent reports indicate how prices in certain areas have fallen below the MSP and with a weak procurement system, farmers have been adversely affected. The Budget must outline more measures to address these issues. With changing consumption patterns, farmers need to be linked with the market even more closely. Demand driven value chains can bring enormous benefits if farmers respond well to the market signals and align production accordingly. And the private sector can play an important role here.
In banking, along with the recapitalisation plan, we would like to see more reforms to improve the functioning of our banks — be it in deployment of technology, credit appraisal skills, training needs of employees or productivity per employee. And the improvement in performance needs to be linked to recapitalisation / support from government. A roadmap for bank consolidation including divesting of government stake in some of the banks to enable them to raise more capital from the market is also an area where we hope the Budget will provide some direction. We also need to strengthen NBFCs that have emerged as an important channel for credit to the MSMEs.
If we look around the globe, we see countries using the tax policy framework to attract investments. A lower corporate tax rate would give a fillip to entrepreneurship and the government should look at bringing the headline rate down from 30 per cent to 28 per cent in the forthcoming Budget.
The government has been extremely responsive to issues related to GST. We are hopeful that some of the outstanding issues would also be addressed by the GST Council.
