I have no insight into the thinking behind the Budget that Finance Minister Arun Jaitley will present tomorrow, however, if the demonetization exercise is anything to go by, the Narendra Modi government is not the one to shy away from taking bold decisions. And bold, path-breaking measures are needed in this Budget to put the Indian economy on a non-linear growth path.
The aim should be to raise India from its current low-income status where per capita GDP stands at US$1,800 to a middle-income country status (US$12,000 GDP per capita). For that to happen, we can’t rely on incremental reforms anymore!
Invest in Infrastructure
The government needs to exponentially step up investment on infrastructure if it is to raise GDP per capita. India suffers from a huge infrastructure deficit, which has resulted in bad roads and ports, inadequate power supply, and lack of stable and cheap fuel like coal and gas. Average infrastructure investment in India between 1992 and 2010 constituted just 4.7% of GDP as against 7.3% across countries like China, Indonesia and Vietnam, as per data compiled by McKinsey.
Investing heavily on infrastructure has time and again proved to be one of the most successful recipes for accelerated economic growth. Huge investments in infrastructure development have been a key driver of Chinese economic growth over the past 35 years. In Europe, Spain used a large proportion of EU funding to build world-class infrastructure, which went into the creation of the “Spanish Economic Miracle”. Even US President Donald Trump is talking about giving the US economy a big infrastructural push by rebuilding America's roads, bridges, and other infrastructure.
We need world-class infrastructure to improve connectivity and effect a 10-fold increase in India’s urban centers. Connectivity is not limited to physical infrastructure like roads and ports, we need to use the latest technology to leapfrog into the future by creating a Digital Economy with a strong information superhighway at its foundation and robust e-governance systems in place.
Given the urgent need to spur public spending on infrastructure development, the government can’t be faulted for diluting its fiscal deficit target of 3% of GDP for 2017-18.
Make Healthcare a Priority
A healthy workforce is critical to rev up economic growth, hence the government needs to seriously invest in improving primary healthcare by investing in schemes that address the needs of those at the bottom of the economic pyramid.
India has a vast population and thus myriad healthcare challenges. The dual burden of communicable and non-communicable diseases poses a grave socio-economic challenge to the country.
India's public spending on healthcare is much lower than BRICS nations. World Bank data shows that public health expenditure in India was abysmally low at 1.4% of GDP as of 2014, compared to a world average of 6%. This is much higher for Brazil at 3.8%, Russian Federation at 3.7% and China at 3.1%, among others.
India needs to urgently raise public healthcare spending to at least 2.5% of GDP if it is to fulfil the needs of ‘affordability’, ‘availability’ and ‘access’ for its citizens. A failure to adequately invest in healthcare can put our country’s economic development and growth in serious jeopardy.
Increased adoption of technology can transform the country’s public healthcare system and ensure a healthy future for all Indians. To tackle resource limitations, the government should adopt a modern ICT-based universal healthcare system that leverages modern diagnostics in primary healthcare for early detection and treatment, and telemedicine to bridge the deficit of specialists at the primary care level. Such a system can also be used for cloud based data collection to collate epidemiological and patient centric data to profile and map the disease burden at the level of the smallest administrative unit.
Similarly, Massive Open Online Courses (MOOCs) and computers that enable e-Schooling, Technical training and higher education will allow the government to take education to even the remote corners of the country.
Focus on Science & Technology in a Big Way
Science & Technology is of strategic importance for the future. The tectonic shift being ushered in by Science & Technology is spurring developing nations to boldly invest in frontier scientific research at par with developed nations. If India is to build a credible scientific and engineering profile, then we do need to seriously invest in research in the public and private sectors.
Based on World Bank data for 2013, India’s R&D spending oscillates between 0.8-0.9 % of its GDP, much lower than countries like China (2%), Japan (3.5%), South Korea (4.15%), and Israel (4.1%).
Despite the low R&D spending, India has had some spectacular successes in space research.The Indian Space Research Organisation (ISRO) successfully put Mangalyaan, or the Mars Orbiter Mission (MOM) spacecraft, in orbit around Mars in its very first attempt in 2014. It was described by the Time magazine as one of the ‘Top 25 inventions of 2014’ and was achieved at a project cost that was a fraction of the money spent by the other nations. However, we can’t afford to ignore sectors such as life sciences, nanotechnology, clean energy etc, which can provide Indian the next bolus of growth.
We must leverage the marvels of science to generate an “ideas economy”. There must be a virtuous cycle of basic and applied science that straddles academic and industrial research if we are to drive world class innovation. If we as a country under invest in Science and Technology, we do so at our peril. I do hope this Budget recognizes Science and Technology as a priority area for investment in our national agenda for economic development.
Incentivizing innovation and IP creation is important for India’s future growth prospects. Enabling entrepreneurs to propel ideas into sustainable businesses will add value to our economy in the long run. It will create a Knowledge Society that will generate wealth and lead to inclusive economic growth.
With start-ups in India facing a funds crunch of late, the Budget should take steps to extend the tax holiday period, improve the ease of doing business and lessen the regulatory stranglehold that still continues to stifle innovation and economic development.
Most of the major economies in the world are today trying to spur growth by boosting domestic consumption. The Budget provides a great opportunity to the Modi government to put more money into the hands of the people by revising personal income tax slabs and thus boosting their spending power.
I recommend the peak 30% tax rate should be applicable only if an individual’s income is above Rs 50 lakh. Currently, the peak tax rate of 30% is applied over an income of Rs 10 lakhs for individual taxpayers. Income between Rs 10-Rs 20 lakh should attract 15% tax, between Rs 20-30 taxed at 20% and the Rs 30-50 lakh income bracket attract a 25% tax rate.
In terms of the corporate tax, Finance Minister Arun Jaitley had announced in 2015 that corporate tax would be reduced from 30% to 25% over a four-year period and various exemptions and deductions would be simultaneously phased out. I believe that instead of arbitrarily reducing rates the Budget should incentivize investments and job creation by linking them to tax rebates. E.g A corporate should be able to get a tax rebate of up to 5% if it creates up to more than 2,000 jobs and invests Rs 1,000 crore in a year.