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  • Sanjay Sachdev

    Chairman, Zyfin Holdings
    Sachdev is Chairman of Zyfin Holdings and Member of Financial Planning Standard Board (FPSB). He has over 26 years experience in the global financial services in various leadership positions building game-changing asset management businesses.

View from New York: World waits to see if FM takes a short cut in Budget

Taking a front lens to Budget instead of evaluating the past from an accounting standpoint would be a good step.

Last Updated: Jan 28, 2020, 08.58 PM IST
Announcements and actions that can demonstrate a stance contrary to this perception may be a big positive that the government can consider.
As the Narendra Modi Government prepares to unveil the Union Budget on February 1, it would be pertinent to point out that one hope, which is positively shared across the world, is that India will continue on its path of reform to remain a tiger with sustained long-term growth.

For starters, taking a front lens to the Budget instead of evaluating the past from an accounting standpoint would be a good step forward. While businesses in the US expect India to move forward with its reform process, recent government actions seem to indicate otherwise, as it seems to be moving more and more towards protectionism and towards increasing import tariffs in order to protect the domestic industry.

Announcements and actions that can demonstrate a stance contrary to this perception may be a big positive that the government can consider.

Besides the obvious focus on improving and emphasizing spending on infrastructure, education and enforcement of regulations in the area of stressed assets to attract foreign participation, addressing the telecom crisis where the country may at best be left with just two players, and mitigating the problems in the power sector (read: electricity), it is imperative that the government also focuses on the here and now:

1. Alleviating the credit squeeze that the business community in the country, especially SMEs, are faced with

2. More medium-term reforms such as legal reforms, especially with regard to the financial services sector in the area of stressed assets.

While the government has taken bold steps to reduce corporate taxes and kept the promise that it had made in 2014, this has come at a huge cost to the economy and the task of meeting the fiscal deficit target is proving to be a Herculean one.

Clearly, a lot more needs to be done to meet the revenue shortfall. FRBM (Fiscal Responsibility and Budget Management Act) as an implementation tool will clearly send out a sound message.

An adherence to the FRBM, which was an initiative of the NDA government when it was in power almost 20 years ago, would send out a good signal, at a time when tax collections seem to be falling due to the combined impact of demonetisation and GST rollout.

More populist measures like lowering of personal income-tax rates may probably bring joy in the short term, but will only further deepen the crisis. Same would be the case with any import tariff increase, which will discourage competition and entrepreneurship that can be globally competitive.

The good news is that this government has successfully brought in many reforms and changed the traditional mindset of the bureaucracy. It does have the ability to take bold decisions when it comes to disinvestment of public sector enterprises, as it has done so successfully in the past.

This is an area one hopes will be a priority in the forthcoming Budget, not just in terms of announcements but also through swift action.

Taxing the rich can only get the nation so far. While enforcement is a necessity, it needs a fine balance and it can be more of a shorter-term approach to attack a longer-term issue. Instead, the government could focus more on incentives for job creation in the private sector while encouraging consumption through a GST reduction on the condition that the lower prices do get passed on to the consumer to encourage and drive demand growth.

While corporate taxes were brought down, the government needs to ensure that the savings get passed on to consumers instead of ensuring greater earnings growth for businesses. At the very least, there should be capital transmission to building more capacity, thus creating jobs. However, this cannot be looked at in isolation unless there is broader impetus on growth through job creation and building more confidence for a brighter future of the youth. That, we hope, this Budget will provide.

(Sanjay Sachdev is Chairman of Zyfin Holdings. Views are his own.)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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