After three waves of the covid pandemic, the Indian economy has rebounded strongly, with signs of improvement becoming visible from the second quarter of 2021-22. The Centre’s focus on reforms and the deft calibration of policies by the Reserve Bank of India (RBI) are paying dividends and India today is in an advantageous position. With growth expected at around 7% in the current fiscal year, India will rank among the world’s fastest-growing economies. India, however, has not remained sheltered from intensifying external headwinds. Geopolitical tensions, especially due to the Russia-Ukraine conflict, have caught the world in a frenzy of supply-chain disruptions, commodity shortages and inflationary spikes. It has caused a severe shortage of critical raw materials for Indian industry, leading to skyrocketing input prices. With the world already struggling to recover from covid waves, these additional shocks have triggered a global slowdown and the outlook for 2023 is worrying. A slowdown in the growth performance of India’s major export partners has impacted our trade prospects, which is a reflection of the second-degree impact of persistently high inflation in the developed economies of the West. Add to this recent developments, such as the resurgence of covid in China and its larger ramifications. This economic backdrop should play an important role in defining the contours of the upcoming Union budget. Overall, the budget proposals for 2023-24 should address near-term downsides while laying the foundation for a medium-term upside. If this is done, it would prove to be a ladder in the economic board game.
The emphasis laid by the government on capital expenditure over the last few years has aided a quick recovery from the pandemic and ensured our growth momentum. Given the current global geopolitical developments and associated headwinds, Budget 2023 should continue with a public capital-expenditure thrust (on physical, social and digital infrastructure). This will also give a stimulus to private investments. Another goal that India must focus on in a laser-sharp manner is to attract global supply chains that are looking to move out of China. The government has already created an enabling environment through supportive policies to consolidate India’s position as a global manufacturing hub. The budget could facilitate it further by extending the cut-off date for starting manufacturing operations under the concessional corporate tax regime by another five years. This would attract many investors that had missed the earlier opportunity due to global challenges such as the covid pandemic and Ukraine war. The move will also give India an edge over competing countries such as Vietnam and Cambodia.
India’s export performance was exemplary in 2021-22. Nevertheless, we need to aggressively increase our participation in global value chains. Sector- and market-specific problems need to be addressed so that we can fully capitalize on exports across sectors. To achieve this objective, the next budget could broaden the scope of the production-linked incentive scheme to include certain high-export potential sectors, such as specific electrical components and sub-groups within the chemical sector. The budget should also consider enhancing the scope of the Remission of Duties and Taxes on Exported Products scheme to include hitherto excluded sectors. E-commerce exports can help micro, small and medium enterprises integrate into global value chains and enhance exports. Establishing dedicated customs clearance lanes will enable faster clearance of time-sensitive e-commerce exports shipments.
The upcoming Amrit Kaal calls for greater focus on innovation and leveraging technology. This requires a strong emphasis on strengthening the nation’s ecosystem of research, innovation and technology development. Companies in India can now create scores of jobs and value through innovations that capture the full potential of digital transformation, energy transition, modern infrastructure development, and realignment of global supply chains. Indian industry will have to lead the way and build innovative solutions with a ‘People and Planet’ approach, while the government plays the role of an enabler to nurture growth and ensure global competitiveness. To this end, the budget could incentivize the private sector to invest more in research and development and introduce a concessional tax regime for non-manufacturing research- and innovation-led companies.
As we seek to grow India’s economy and ensure it remains a key source of growth for the world, climate change is a critical challenge that we will need to address. We must transform our economic and financial systems to power the shift to sustainability. This transition requires focusing on two primary objectives: 1) increasing green finance; and 2) managing climate-related risks that impact financial risk. To provide a real thrust to green financing, we require a comprehensive national policy framework, including a well-defined standardized taxonomy, for sustainable financing. A national-level framework could explicitly be put in place to support India’s sustainable development goals and commitments under the Paris Agreement. Technology and digitalization will have to be more holistically integrated in the agri-value chain to minimize the impact of climate change on farm activities. In this context, the budget may allocate funds to institute an Integrated National Sustainable Seed Development Programme, while also enhancing the budgetary allocation to promote greater use of ICT, drones and smart digital solutions for real-time deployment by both the government and private sector.
These steps will support our recovery process. They may entail a slightly higher deficit than what fiscal purists may want to see, but would be effective from the perspective of the budget contributing to overall national growth in an increasingly uncertain global economic environment.
Arun Chawla is director general, Federation of Indian Chambers of Commerce & Industry
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