Budget 2024: Hopes for green energy push, railway capex, GST rationalisation continue, says Expert
The forthcoming interim budget will be the sixth in a string of exceptionally progressive and growth-oriented policy initiatives from the current Finance Minister. Pragmatic, inclusive and development driven, the FM’s budgets have a track record of stability in tax policies and sustainable long-term growth at its core. During her term India has emerged as the fifth largest economy in the world, a truly commendable achievement.
Election year is always a challenge for the FM, needing to balance key economic priorities with the expectation of the electorate, matters that seldom converge. There are a few areas where policy and tax laws can be rationalised to spur growth and competitiveness.
- Green energy will need to be emphasised and promoted through policy so that the momentum is sustained. We have made a promising start with solar and wind, both of which still need to attain greater viability prospects. Sustainability in general will need to get supported through the budget both in terms of incentives and also tax policy so that companies are encouraged to embrace sustainable practices and also innovate their products and services to meet global standards. PM Modi’s Green Credits Initiative proposed at the COP 28 summit and also the commitment to balance economic development aspirations with actions on climate change are positive steps that need budget initiatives. With the right framework, India has a good potential to be a generator and exporter of carbon off-sets.
- I expect the FM to continue the allocation for railways’ capacity enhancement, rail safety and Mission Raftaar.
- Customs duty and GST reduction on solar cells and components need a relook. Introduction of the Green Hydrogen Purchase Obligation for identified industries and reduction in the GST rate for electrolyser manufacturing, along with fiscal incentives aimed at ramping up Green Hydrogen production will give a thrust to this important energy option.
- The 15 percent tax rate for new manufacturing units could be made more inclusive by extending the benefit to companies that already have a unit and are expanding their manufacturing base by adding another unit. The existing norms are very stringent and difficult to comply with and this change could render greater effectiveness to the larger purpose of promoting manufacturing.
- GST rationalisation should continue through a reduction in the number of slabs by merging 12 percent and 18 percent into 15 percent. Also the list of products at 28 percent GST needs to be revisited. Tyres are subjected to the highest GST rate of 28 percent. Considering the fact that tyres neither fall into the luxury category nor sin category goods, there is an urgent need to correct this. Lowering the GST on truck tyres would help in reducing the cost of transportation as will reducing the GST on two-wheeler tyres give a relief to the common man.
- The tyre Industry suffers on account of an inverted duty structure where imported tyres have a lower duty compared to imported natural rubber, its major raw material. To create a level playing field, the government should either look at reducing import duty on raw materials or increase the import duty on tyres.
- India spends 0.7 percent of GDP on R&D versus the global average of 1.8 percent and around 2.5 percent for China. R&D spends are encouraged globally, even in advanced economies like the US, through various fiscal measures. R&D is critical for global competitiveness and also in our quest to create sustainable products. India had a weighted deduction on R&D of 200 percent. The benefit has been discontinued since 2020 and is being badly missed ever since.
- Under the erstwhile service tax regime there was a concept of a centralised registration. Under GST, a company has to register separately in the states, leading to substantial difficulties in dealing with demands. While manufacturing units may still need to have state-wise registration, for the services sector, it would be a great relief to have a centralised registration.
Being an interim budget, it will have limited scope for large scale interventions. The Modi government has done a commendable job of managing the fiscal deficit despite the challenges of the pandemic, high inflation and several global events which have affected many economies worldwide. There is a growing confidence in India that we will soon become one amongst the top three economies of the world. The interim budget will therefore have one eye on our fiscal prudence while addressing inclusivity in our pursuits.
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