Bhuvan Bhaskar
The National Statistical Office (NSO) estimates that India’s economy will become the world’s fastest growing economy at 9.2% during 2021-22. This is good news for the country, despite this year’s growth rate coming in at a negative rate of last year’s unprecedented 7.3%. The return of such rapid growth has come despite predictions of global economists such as Dr. Manmohan Singh, Kaushik Basu and Raghuram Rajan, in which they spoke of a sluggish economy for years.
However, these figures of NSO have come at a time when Finance Minister Nirmala Sitharaman is busy completing the preparations for presenting the budget for the next financial year. Along with the GDP figures, the NSO has also reported that India’s GDP at the end of March 2021 with a growth of 9.2% will grow by 17% over 2019-20 GDP, which is much higher than the budget estimate of 14%.
However, the data also shows that consumers in the service sector are worried and their confidence is shaken. Obviously the third wave of Corona has started showing its effect on the improvement in the economic situation. Against this background, the goals and challenges of the budget have become more clear before Finance Minister Sitharaman.
The Reserve Bank had projected a full-year growth of 9.5%, which means that if the magnitude of the third wave of Corona increases, then the rate of GDP growth may go below 9.2%. In such a situation, the Union Budget for 2022-23, to be presented on February 1, has become very important, as it has given the government an opportunity to identify and prepare itself to deal with the risk at the same time. Will be in full swing.
GDP or in common parlance, the economy can be broadly divided into three sectors – the service sector, the industrial sector and the agriculture sector. The Gross Value Added (GVA) of the service sector or service sector on a value basis for the financial year 2020-21 was Rs 96.54 lakh crore, which is 54% of the country’s Rs 179.15 lakh crore GVA, while the industrial sector accounts for 26% of it .
The share of agriculture sector is 20%. If we look at the experience of 2019-20, when economic activities and tourism came to a halt due to Corona, the agriculture sector still performed better than its average. Talking about the service sector, a large part of which is related to tourism, the role of the government is limited in the backdrop of Corona.
When the situation is right, then the situation will improve here and how much it will improve will depend on how much the income of the consumers increases and how much their trust increases. In order to ensure the growth of the third sector, ie industries, the Finance Minister needs to empower the consumers in the end. how? Let’s understand.
After the historic economic reforms initiated by the Narasimha Rao government in 1991, the second round of industrial reforms awaited for two and a half decades. Finally, the Narendra Modi government has taken many important steps in this direction in the last 5 years. A major part of Industrial Reforms 2.0 has already been implemented in the form of GST. The second part, labor reforms are likely to be implemented from the next financial year. The only last legal formality left for the implementation of labor reforms is the issuance of notification.
The government had planned to implement it from April 2021 itself, but because this subject is in the concurrent list of the Constitution, the states will also have to issue a notification for this law. The Center wants all the states to issue it together so that it can be implemented simultaneously in the whole country. That is why it has not been implemented in the current year, but government sources are telling that almost all the states have now prepared draft laws and notifications. So these important reforms will be implemented from April 2022, it seems. This in itself will be a significant growth trigger for the industry.
But the other effect of labor reforms on consumers would be that their take-home pay would be reduced. Lower wages coupled with already shaky confidence will further tighten consumer wallets and worsen the already tight consumption front. This is not good news for the industry. In such a situation, the Finance Minister should consider giving some relief in income tax. For the last few years, the common salaried taxpayer has not got any special relief from the Modi government. The government has only further complicated the direct tax structure.
Even in the much awaited Direct Tax Code (DTC), the government has only complicated the taxpayers by playing the old regime and the new regime. At a time when the government’s income from indirect taxation (GST) is showing unexpected growth and the tax on petrol and diesel has also made windfall profits, it is high time to give some concrete exemptions to the income tax payers.
In order to encourage the industry for private investment, the government will have to give incentives for companies as well as consumers. Private investment in India has been a decades old problem in terms of growth in the economy. Private investment has never touched that level since 2007-08. But the flip side is that there may never have been a better time than now for private investment, which means companies investing their own money to expand their activities.
According to a report by Kotak Institutional Equities, corporate earnings are expected to grow by 34% in the current year and 15% in the next year as well. That is, companies have more funds than before. Banks are also in a better position to lend after the recent capital infusion, bad bank and merger activities. All that is needed is to instill confidence in the companies that the return on their investment will come back. And this trust can be created only and only by instilling confidence in the consumers.
(The author is an expert in agriculture and economic matters)
.