Budget 2020: Five ideas to kick-start Indian economy, create jobs

Now that everyone has acknowledged that the economic slowdown is real, the focus should move from diagnosis of the problem to finding creative solutions for job-led economic growth. All policymakers would agree that there is an urgent need to boost demand, create jobs, encourage local manufacturing, reduce current account deficit, and plug revenue leakages, enabling the government to spend more on infrastructure and human development.

Let’s be frank, Finance Minister Nirmala Sitharaman has little headroom for a big tax cut without taking an imprudent hit on the fiscal side. I would like to propose five ideas — tangible and implementable — which the FM could use in her upcoming, make-or-break Budget 2020-21.

The government should create an online marketplace reserved for products manufactured in India. An individual buyer who purchases an item through this portal should be given income tax exemption up to Rs 3 lakh a year. This tax exemption will encourage people to buy Make in India products, boosting both demand and GST collection. The market valuation of such a portal will be an added advantage, boosting the government’s bargain power with international giants like Amazon and Walmart-Flipkart.

It is a common practice among businesses in India to book expenses in cash to show less profit and avoid tax liability. The government should bring an amendment in the Income Tax Act and disallow cash expenses in excess of 10 percent of the total expenses for any business with annual turnover over Rs 1 crore. This will not only put a check on tax avoidance, but employers will also be forced to pay salaries on time and make other expenses through the banking channel, helping the entire economy.

The government has been struggling to increase GST collections despite many efforts. There are talks about an increase in GST rates, which will be counterproductive — higher tax rates encourage tax evasion. Instead of increasing, GST rates should be rationalised in three slabs — 5 percent, 10 percent and 15 percent. At the same time, the government should restrict input credit to 50 percent of the GST paid, for example, a business will pay 15 percent GST on the rental paid for the building, but it will get input credit of 7.5 percent only. This will not only compensate for the losses due to reduced GST rates, but also discourage the illegitimate business of sale of GST input credit which has become a widespread practice. Lower tax rates will naturally mean higher compliance.

Indians are spending about $10 billion a year on studying abroad, according to an Assocham study. The Government of India should offer a one-time aid of $70 million (Rs 500 crore) to each of the world’s top 50 universities. Even if half of them agree to set up a campus in India within the given timeframe, it will reduce outflow on foreign education and create huge job opportunities for teaching, administrative and allied services in India. Such an aid should obviously have conditions that favour India’s strategic interests. In the long run, it will create a foundation for research-driven higher education in India, something that’s of strategic national interest at a time when China is taking the US head on in R&D investments.

The government should create a job portal where employers and job seekers can register themselves. Employers should get access to the available manpower in their neighborhood, matching the required skills and experience. Employees hired through this portal should be exempted from contribution towards the provident fund and ESI, and the government should bear this cost. The government should relax the applicability of stringent and outdated labour laws for such employees, other than safety-related measures. This will help the industry as well as the job seekers. The government would also be able to create a good database on unemployment. This also helps in escaping outdated labour laws, which can’t be amended immediately due to political and vested interests.