With few signs of success after the onslaught of coronavirus, the government is now facing the daunting task of bringing Asia's third-largest economy back to positive growth. India's GDP plunged 23.9 percent in the April-to-June quarter, the biggest decline since records began in 1996. The Goldman Sachs Group estimates a 14.8 per cent contraction in India’s GDP for the year through March 2021. The IMF's latest estimate predicts the economy will dive 10.3 per cent in 2020, compared to the US' negative 4.3 per cent contraction and China's positive 1.9 per cent growth.
The government while announcing “Aatma-Nirbhar Package” on 12-May-20 announced many initiatives but much more is required to be done.
The “$5 Trillion Dream” by 2024 is still achievable only if the government immediately takes the right steps on the economic front. A few such steps could be as follows:
India has reached a position where tax reforms are inevitable. Last year we were discussing that India is facing a slowdown and the demand is weak. In 2019, the government reduced the corporate tax rates and increased the supply side but failed to address the weakening demand. Thus, India’s GDP growth for March’20 Quarter was around 3 per cent. For individuals, they came with two taxation structures - old structure with deductions and a new structure with lower tax rates but without any deductions.
In “Aatma-Nirbhar Package” TDS & TCS rates were reduced by 25 per cent but the taxation rates were left unchanged.
To address the issue of weak demand, the government should immediately reduce income tax rates for individuals. The government came with the “GST Amnesty Scheme” which ended on Sep 30, 2020 but Section 16(4) of CGST Act’2017 was not relaxed and therefore the person availing the benefit of this scheme was required to pay the huge sum due to denial of ITC. Consequently, the government should re-introduce “GST Amnesty Scheme” with ITC benefits. This would also help the government in generating more revenue outside the budget.
The travel and tourism industry has suffered huge losses due to the pandemic. To support this industry GST exemption is required, which would significantly reduce the cost. The government should relax all notices, proceedings, search, and seizure in routine matters till March 2021 to create an environment of peace and harmony.
Infrastructure is a vital element for encouraging economic growth for countries like India. India has been investing around Rs 5 to 8 lakh crore annually on infrastructure. Whereas, to fulfil the dream of becoming a $5 trillion economy the need is to invest Rs 12 to 15 lakh crore annually. Not only does infrastructure in itself enhance the efficiency of production, transportation, and communication, it also helps to provide economic incentives to public and private sector participants.
India is expected to become the world's third-largest construction market by 2022. Only 24 per cent of the national highway network in India is four-lane. The Regional Connectivity Scheme (RCS) allows the development of airports. Further there are initiatives like “Housing for All'' and “Smart City Mission”.
India ranked second in textile export with 6 per cent of global share and stood fifth in apparel export with 4 per cent of the global share. The industry is highly capital intensive in nature and is dependent on its capital requirements through borrowings from banks and financial institutions. The government has allowed 100 per cent FDI in the sector under the automatic route and it is expected to attract $140 billion foreign investments in the coming years.
The government has carried out high investments under Scheme for Integrated Textile Parks (SITP) and Technology Upgradation Fund Scheme (TUFS) to encourage the flow of more private equity and to train the workforce. But to compete with our neighbouring countries like Bangladesh and Sri Lanka, we need more infrastructure investment in this sector.
To attain a high growth rate, economic reforms are preordained. The important features of the economic reforms were Liberalisation, Privatisation, and Globalisation, popularly known as LPG. But under the pandemic, we need to change the overall objective of the economic reforms.
If India has to accelerate its economic growth, then firstly, it has to improvise in its manufacturing sector. China is the global manufacturing hub. As the Artificial Intelligence (AI) revolution sweeps through societies and enters daily life, its role in shaping India's development and growth is bound to be substantial.
The Union Budget 2019 of India had claimed AI to be high on the agenda in the digital sector of the budget. This announcement was significant given that China has been consistently building an ecosystem to fuel its ambition to become a world leader in AI by 2030.
A large struggle often faced by AI start-ups is early-stage funding. If the government announces a fund, similar to the likes of MSME, Funds of Funds that invest only in early-stage AI startups by encouraging these entities to get listed on the main stock exchange – it would encourage more growth opportunities. The prime minister hailed “Vocal for Local” recently. The government should come with detailed guidelines on how this has to be implemented and promote local goods by providing capital subsidy or subsidy on electricity or interest subsidy so that goods produced locally are cheaper.
Despite the world's most stringent countrywide lockdown Indian economy is poised to high growth territory subject to government and private actions in the same directions. The government has taken several measures in this direction and results would be seen in the future. Now India should start actively attracting foreign investments from the companies leaving China to take a giant leap in the economic growth of the country.
The author is the Founder and Promoter of GST Panacea
The views expressed are personal.