The Union Budget for 2014-15 will be presented by the finance minister even as there is a new mood of optimism prevailing in the country ever since a new government has assumed office. For this mood to translate into sustained GDP growth, I suggest the following four steps.
Commenting on the budget expectations, Dinesh Patidar, CMD of Shakti Pumps , said, 'Firstly, the government needs to restore the 11 year old tax holiday enjoyed by Special Economic Zones. The previous government had abolished this and the result was that a number of companies stalled their projects. These projects had been initiated in the first place due to this tax holiday.
Secondly, the government has to relook at the Minimum Alternate Tax. It was earlier introduced to bring companies which were making profits under the provisions of the Companies Act 1956 but were not paying taxes. As per global norms MAT shouldn’t be more than 10% to 15% of book profits but thanks to amendments, it is now levied at 18.5%. Also, depreciation is not treated as a tax deductible expense for the purpose of computing MAT. This in turn hinders cash generation for investment. The government should bring down MAT to about 10% to 11% of book profits and should again start treating depreciation as a tax deductible expense for computing this tax.
The surest way to protect India against the currency risks witnessed last year is to boost exports which are a durable source of foreign exchange and can help control the current account deficit. In this context section 80HHC of the IT Act should be reintroduced under which export income will be non-taxable.
Further to this, the Indian power sector is plagued by power theft and huge transmission & distribution losses. The World Bank said earlier this year that the country’s power sector faces annual losses of USD 27 billion by 2017 unless sweeping reforms are taken up. One key improvement area identified has been tackling inefficient subsidies. As per the World Bank’s calculations 15,000 hospitals and 123,000 schools could have been developed in 2011 if the states had not been required to pump money into utilities to keep them afloat.
A number of farmers that I have interacted with in the course of my professional engagements are more than happy to pay for quality and uninterrupted power supply. The time, I believe, has come for doing away with free power. Since power is on the concurrent list, the central government can initiate the principle of doing away with free power in the Union Budget and then follow it up with joint action with the states. If that is too radical a move, then the government can give interest free loans to farmers for opting for a renewable source of energy like solar power. The solar pumps have a lifecycle of 25 years and they are extremely cost efficient compared to conventional power sources. They can also contribute the surplus power to the grid, easing the pressure on it.
This four pronged plan can I believe stimulate investment as well as help in fiscal consolidation and put India back on the path of high GDP growth.'
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