Economy

Union Budget 2020: What the government can do to revive flagging economy

Updated : January 14, 2020 06:23 AM IST

Reducing the obvious levies like licence fees and spectrum usage charges will boost the telecom sector.

The frequent changes in regulatory regimes have shaken the confidence of foreign investors.

Considering the economic sluggishness, tensions in West Asia and opposition to recent bills, this year’s Union budget provides an excellent opportunity for the government to restore confidence. Of late, India has seen a drop in consumer demand and lower GST collections; while unemployment and poor-quality of jobs remain the biggest pain points for the country’s youth. The government has in fact been working overtime to receive feedback from every stakeholder over the past few months. Come February 1, the country is hoping to see a more agile approach from the government in its pursuance of the $5 trillion target for India’s economy.

Telecom

Connectivity, whether physical or virtual, is the key to India’s growth. Thus, government must focus on assuaging the concerns of the telecom industry. Cutting back the obvious levies like licence fees and spectrum usage charges will boost the sector. As this is a capital-intensive industry, low-interest funding will definitely ease a few nerves. The government must remember that its populace has a huge appetite for data.

Infrastructure spending

Most industry leaders are of the view that the finance minister must outline a roadmap to increased spending on infrastructure. Indian Railways has already topped its all-time high CAPEX this year. Infrastructure companies will definitely welcome exemptions from cross-subsidisation. The automotive sector commands 15 percent of India’s steel demand and holds the veto power on steel prices. While last year’s budget did focus on building waterways as an alternate source of transport, its effect on the import bill is still unknown. The government must encourage further spending on rural sector especially small-ticket rural ventures to kick start growth.

Financial sector

The unearthing of a number of frauds within the industry has affected lending and customer confidence. The government must act to encourage risk-averse banks to fuel credit for consumption growth and ensure timely redressal of cases referred to insolvency courts. It should relook at the FDI in insurance sector to boost foreign investments.

Real estate

This sector has been facing a sluggish demand, leading to unsold inventory. Though the government has managed to introduce formalisation within the industry through institutional changes like GST, RERA, IBC; the fall of GDP has had a detrimental effect on the demand of both residential and commercial units. The government must ensure private sector involvement to achieve its ‘Housing For All’ target by 2022.

Education

Though the expenditure within the education sector has risen 4.5 times in the last 5 years, we still have a long way to go. Last year, the government announced skill certification schemes and Pradhan Mantri Kaushal Vikas Yojna (PMKVY) for making our graduates industry-ready. The government must ensure further incentives for the success of these schemes. With the country warming up towards online learning, lowering of GST rate, which is currently at 18 percent, will ensure that more people will seek professional assistance in skilling and reskilling themselves. In addition to the CSR initiatives, the government must introduce tax benefits for corporates who provide scholarship opportunities in higher education. Establishing research funds, improvement in the quality of teacher training and easy availability of student loans are some of the key focus areas for the government.

Automobile sector

The auto sector today is in the middle of the worst slowdown of this century. While the government in its last budget stressed upon subsidising ‘electric mobility’, there is room for more. Lowering and possibly scrapping of import duty on lithium-ion batteries is on top of every automotive company’s wish list. This shall lead to the domestic manufacturing of battery packs and subsequently create avenues for cell manufacturing. Furthermore, while the government is looking to lower emissions through the introduction of BS-VI, reduction of GST on these vehicles will help offset the increased cost/unit.

Start-up industry

While the industry has seen a growth of interest and appreciation, a stable policy environment still remains its biggest demand. The frequent changes in regulatory regimes have shaken the confidence of foreign investors. Considering the initiation phase of their organisations, a longer timeline to carry forward losses has also been one of the requests from this industry. As AI, IoT and Blockchain become the backbone of future technologies; the government must set-up a deep tech fund to encourage start-ups within these areas.

Nilesh Gaikwad is Country Manager at EDHEC Business School, France. He can be reached at nilesh.gaikwad@edhec.edu

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