SYLLABUS: GS – 3- Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.
Budgetary measures –Industrial sector
The finance minister tabled her second full Budget amidst unprecedented challenges posed by the novel coronavirus (Covid-19).
Government’s calibrated approach in tackling the supply and demand-side disruption during the pandemic, coupled with the mega vaccination drive that started last month, is expected to invigorate a V-shaped economic recovery–placing hopes on buoyancy with an ambitious GDP growth rate at 11% for FY22.
- The government has introduced much-needed push for the manufacturing sector by committing Rs 1.97 lakh crore, to be spent over five years in the 13 sectors under the PLI scheme.
- This shall incentivise manufacturers to expand production, generate additional investments and job opportunities.
- They can focus on using India as a base for the domestic market as well as exports. The textile sector is given a special impetus with the introduction of Mega Investment Textiles Parks (MITRA) scheme.
- With a commitment of seven Textile parks, the government intends to develop economies of scale and large employment opportunities in labour-intensive sectors. The policy reforms, coupled with one of the lowest corporate tax rates, can help India become a global player in manufacturing.
- Clearly, the budget’s focus on creating a competitive manufacturing ecosystem to enable new domestic and FDI investments is visible through higher outlay for infrastructure investments.
Considering the capital-intensive nature of the infrastructure sector, the government has rightly announced a handful of infrastructure financing related reforms.
- Starting with setting up a Development Financial Institution (DFI) with a lending portfolio of `5 lakh crore, increase in the capital expenditure in the ‘future-ready’ railway system, and expanding the urban infrastructure of metro & public bus transport.
- These will certainly provide a fillip to the economic recovery and cushion to the manufacturing/ infrastructure sectors.
- A key highlight has been Asset Monetisation Program of the public infrastructure assets–airports, NHAI roads, oil & gas pipelines, etc.
- The infrastructure sector is further reinforced by enabling FPIs to invest in debt instruments of REIT/ InVIT, and separately providing tax reliefs by exempting TDS on dividends paid to REITs and InVITs.
- Additionally, affordable Housing Projects will be eligible for another year of tax holiday.
- To make compliances less onerous on start-ups, suitable amendments have been proposed in corporate laws, in addition to extending the tax holiday by another year.
- Rationalising old laws has been a focal point of this government, be it the introduction of GST or the insolvency laws.
- This year, the FM proposed to introduce a rationalised single Securities Markets Code.
- In the insurance sector, the government proposed to allow foreign investment up to 74%, with adequate safeguards.
- To clean the books of public sector banks, it has also proposed to set up an Asset Reconstruction Company and Asset Management Company, which will take over and dispose of the stressed debt.
- To buttress the financial industry, tax incentives are proposed for re-location of foreign funds in IFSC and setting up of aircraft leasing companies in IFSC.
- 95% of Indian businesses are still micro, and they need to move to the stage of being small and eventually large.
- MSMEs need the government as an anchor to enable their transition.
- The Budget announced a doubling of an outlay for MSMEs to the tune of `15,700 crore, which is very positive.
- However, one will need to review how the allocations have been worked out.
- One of the key areas where one hopes allocations have been made is enabling MSMEs to adopt quality infrastructural, technological and digital interventions to solve their productivity, financing and demand linked challenges.
Certainty in the tax environment:
- Balancing the business sentiments, the FM also proposed reforms to provide certainty in the tax environment by extending the digitised faceless platform to the tax tribunals, overhauling the existing alternate dispute resolution forums, like Authority for Advance Ruling for faster disposal of cases and providing for a novel Dispute Resolution Mechanism for small taxpayers, thereby accelerating the ease of doing business.
- In the continuing efforts of extending ‘ease of doing business and providing certainty’, the time limit for reopening of tax assessments has been rationalised, tax return filing requirement for a certain category of senior citizens has been dispensed with, clarity provided, inter alia, on the applicability of TDS on FPIs availing treaty benefits, India’s digital tax provisions introduced last year.
- From an indirect tax perspective, though, not many changes have been proposed, and the focus has been on rationalising GST/custom duty laws to boost local manufacturing and remove issues arising from inverted duty structure.
- Though, one could always debate for tax relief for individual taxpayers, which may have indirectly resulted in increasing discretionary spending.
- The good part, however, is that despite the high fiscal deficit at 9.5% of the GDP and increasing debt-to-GDP ratio, the FM did not impose any additional taxes, like Covid cess, restructuring corporate taxes, etc; this should be seen in a positive light.
- To augment finances of the government, the FM announced strategic divestment in companies, privatisation of two PSU banks, etc, and confirmed the much-awaited IPO of Life Insurance Corporation of India.
With the Budget aimed at a balanced allocation of funds, interlaced with growth infusion through fiscal and non-fiscal policy announcements, the FM has managed to walk the talk of continuing on the reformist road to economic recovery and provide a holistic approach paving the path for a $5-trillion economy.
Source:” Financial Express ”.
POSSIBLE UPSC MAINS QUESTION:
Discuss the budgetary measures announced to revive the Indian Industrial sector.