With the Indian economy doing well in first three quarters of FY22, when compared to FY21, and the government’s determination to carry this momentum to the next financial year, the expectations from the Union Budget FY23 remains reasonably high.
Five broad areas which could cement this growth would be in terms of domestic growth, facilitating export infrastructure, access to healthcare, increasing savings to help consumption, while also supporting geo-economic preparedness.
Trade has been the driving force for the prosperity of most economies across the globe A lot of hope is on the PLI scheme, which advocates incremental production-based incentive, and has the potential to take India’s exports to a new high, while also diversifying the export basket.
In this context the government can consider enhancing the exposure under PLI and have more upcoming industries identified. For example, industries like aerospace, warehouse robotics, waste management, including maintenance, repair, and overhaul (MRO), amongst others, could be bought under the ambit of PLI.
Hopefully the Budget FY23 will widen the PLI scheme while considering upcoming potential industries, especially while targeting India’s exports to reach $1 trillion by 2025.
India’s coastline is almost 10 times that of Vietnam which has four major ports. Encouraging PPP with some of the world’s largest port players of Singapore, Hong Kong, Busan, and Rotterdam can change the course of India’s trade. Along with it, the government needs to open the dredging market to increase and maintain draft depth at ports allowing larger vessels. Many of the existing ports in India also requires to be modernised, and connectivity enhanced.
In fact, many of these ports across the coastline can evolve as big manufacturing and export hubs, while also reducing the cost of trans-shipment. Further, should there be any tax exemptions for foreign flag ships in these ports, India can become a hub in the Asian peninsula.
The Budget FY23 could identify a few ports with time bound incentives towards completing them.
It may be noted that while Budget FY22 announced ₹1,702 crore for the Ministry of Ports, for development of ports, there were none for major ports -- budgetary allocation for minor ports declined by 54 per cent in the last two years.
While hopefully the upcoming Union Budget will provide rebates on medical insurance premiums, and further inducements for R&D spend to boost pharma companies, it is important to strengthen the healthcare infrastructure in tier 2 and tier 3 cities. This lack of infrastructure was tragically exposed during the Covid-19 second wave.
According to the National Health Profile 2018 in the country, the number of district hospital stands at 1,003, government hospitals in rural areas at 19,810, railways 136, and employee state insurance company 151. If these hospitals are strengthened on a public-private mode by extending attractive incentives, including exploring a tax holiday, the population of the country will be healthier. In fact, even if 5 per cent of these 21,000 odd hospitals get the attention for time-bound upgradation, the pressure on tier-1 cities will be much reduced.
Increasing tax exemption
Section 80C allows a maximum deduction of ₹1.5 lakh every year from the taxpayers’ total income. Over and above this, the NPS gives an additional deduction of ₹50,000 under Section 80CCD (1b). While the income of people has increased, the interest rates has continued to fall as opposed to cost of living.
Further, the pandemic has caused many job losses and exposed their financial vulnerabilities especially when it comes to secured saving instruments.
Hence given the situation it will be beneficial for the salaried class if the Budget FY23 considers doubling the yearly contribution under Section 80C and Section 80CCD (1b). Enhancing the ceilings will not only boost India’s domestic savings, but will also contribute to government financing its deficits. At the same time investment through NPS would allow more investors to participate in the capital market through the various options available in it.
The pandemic exposed the issues related to healthcare. The Union Budget FY23 could expand the scope of section 80D to allow a deduction for expenditure incurred on any pandemic related treatment of all, irrespective of age.
Another segment which would have a multiplier effect on the various other sectors of the economy is the residential housing sector -- its contribution to GDP is around 5 per cent -- apart from being a large employment generator. The Budget FY23 could enhance the deduction limit for interest on home loans under section 24(B) above the permissible ₹2 lakh to boost the overall economic sentiment.
While supporting exports have a multiplier effect like creating jobs, boosting manufacturing, earning foreign exchange, in today’s emerging scenario exports also play a critical role amidst the changing geo-economics. As India aspires to move into producing EVs, mobile phone, solar panels, aerospace, etc. it is also important to acknowledge that there are many inputs like lithium which go into these but are not available in abundance in the country. So India would be glaring at a new form of dependency on imports. This revives the need to secure certain assets overseas.
In this context Budget FY23 could explore having a dedicated financial institution like Exim Bank which can cater to such overseas strategic needs with government backing, something akin to Chinese government banks and institutions. Beneficiaries of such a support could be Indian PSUs and quasi-sovereign institutions.
It may be mentioned that US, at the onset of the pandemic in December 2019, operationalised a new, ‘Development Finance Corporation (DFC)’ to pursue its strategic interests. This initiative is considered as an effort towards its needs, specifically countering China’s influence on global trade and business, and furthering the US foreign policy goals whilst supporting US direct investments abroad.
The writer is an Economist with India Exim Bank. Views expressed are personal