As Finance Minister Nirmala Sitharaman gears up to present the Union Budget on February 1, India Inc shares its hopes and concerns
MSMEs need more incentives
At a time when the economy of India is experiencing a slowdown, the country is hoping for a balanced Union Budget by Finance Minister Nirmala Sitharaman on February 1. The middle-class is anticipating relief in income tax and Micro, Small and Medium Enterprises (MSMEs) are looking for incentives. It is also crucial for the FM to formulate policies which ascertain 6.5 per cent real GDP growth for the fiscal year 2020-21.
Time to revamp MSMEs: While the economy is still facing a liquidity issue and MSMEs are bearing the brunt of the deceleration, achieving 6.5 per cent growth is a challenge but not impossible. If the Government could save Non-Banking Financial Companies (NBFCs) and MSMEs, the scenario would turn favourable within a few months. Recently, the PHD Chamber of Commerce and Industry (PHDCCI) requested the Government to change the definition of MSMEs in response to alterations in the economic environment of the country in the last couple of years. MSMEs are the backbone of the Indian economy and the country cannot compromise with their health. Hence, a changed definition will help the sector enhance its contribution to employment-generation, poverty-alleviation and resource improvisation. A large number of MSMEs are struggling with financial challenges and without subsidies their sustenance is difficult. It is shocking that out of the 6.33 crore MSMEs in the country, only 0.05 lakh are medium enterprises. They are usually deprived of the Public Procurement Policy which mandates 25 per cent procurement from the micro and small enterprises. They are also barred from availing delayed payment reliefs through facilitation councils.
Need for sector-specific measures: Besides considering the problems of MSMEs, Sitharaman must also address the issues of underperforming sectors such as real estate, energy and telecom. There is an urgent need to reinforce sectors which strengthen the infrastructure of the country but are reeling under the impact of the downtrend. Last year, Sitharaman relieved large businesses by cutting corporate tax to 22 per cent, but businesses cannot flourish until MSMEs become secure and stable. The Government should also lower the tax burden on MSMEs by slashing the Goods and Services Tax in key sectors. The real estate sector, which is one of the growth propellers of the economy, has been struggling for almost a decade. To infuse life into this sector, the Government must consider its long-pending demands such as getting industry status, a single-window clearance mechanism, dropping the circle rate section from the Income Tax Act, elimination of taxes on vacant property, reduced land acquisition cost and tax rationalisation on Real Estate Investment Trusts.
Telecom, yet another crucial sector is hopeful that the Government will take measures to resolve the burgeoning debt issues in the Budget. Telecom companies are also demanding reduction in licence fee, Spectrum Usage Charges and relief in levies.
No compromise with liquidity: The next big challenge before Sitharaman is increasing liquidity in the market because it is directly proportional to the growth of MSMEs, especially start-ups. The IL&FS and DHFL fiascos had drastic repercussions on the financial markets, and one of the main reasons for the huge impact is the lack of availability of alternative options to bank funding. Now, Public Sector Banks have decided to cut their Marginal Cost of Funds-based Lending Rates (MCLRs) which will be beneficial for the economy as it will improve liquidity in the market. Lower MCLRs will mean that NBFCs can borrow from banks at lower rates and the NBFCs that operate in SME lending and housing will benefit the most. It will strengthen the capitalisation structures of HFCs and help revive the real estate sector. Also, to bring back positive sentiments in the market and to counter the decelerating growth, better liquidity is needed and a lower MCLR would help meet this to a great extent. Industry pundits believe that stability in the sector will be regained by the first quarter of 2020. They are optimistic about increased demand for credit because urbanisation is taking place at a fast pace. Plus, there is a thriving start-up culture in the country and retail and e-commerce sectors have high penetration even in semi-urban areas. The Government should also keep inflation under control and it must not go beyond six per cent for at least three quarters. If all these issues are addressed, making India a $5 trillion economy will be a realistic goal.
(The writer is founder, CEO, of an investment management firm)
Give IT sops to boost EV sales
The Union Budget announced in 2019 was in many ways a landmark one for pushing e-mobility. Not only was the Goods and Services Tax (GST) on electric vehicles slashed to five per cent, the Budget also offered major incentives for buyers of electric vehicles (EVs) in the form of income tax rebates on loan. These measures were designed to push the sale of EVs, which have been on the top of the Government’s priority list in recent years. These incentives were additional to the major commitment announced under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME-II) scheme to boost EV infrastructure. However, the sale of EVs remained lukewarm with an analysis suggesting that just 1,309 units of e-cars were sold between April and November 2019. With the economic slowdown and falling demand hitting the auto sector hard, the industry needs a slew of measures that will address concerns on both the demand and supply sides. With the Union Budget round the corner, there are hopes that the Finance Minister (FM) will announce measures to revive consumption, put more disposable income into the hands of the people as well as more sops for EVs. Importantly, the FM must give a policy push to e-bicycles which have the potential to be at the forefront of an e-mobility revolution.
Revive demand: In its annual review, the International Monetary Fund (IMF) said that the declining consumption and investment, accompanied by falling tax revenue have arrested India’s GDP growth. The IMF also called for “urgent” policy actions to reverse this slowdown. Falling demand has been at the centre of the current slowdown and the country needs measures that can put more incomes into the hands of people and revive consumption. Cutting income tax rates and readjusting income tax slabs might be a tough call at a time when the Government’s revenues are shrinking but it might also be the bitter pill the economy needs. An income tax exemption on income up to Rs 5 lakh can positively impact salaried taxpayers and boost consumption. It can also spur buying among people who have deferred automobile purchases in view of the deceleration. However, just monetary measures will not be sufficient. The economy also needs a major fiscal policy push to increase employment and income. The Government must announce broad measures to infuse expenditure in strategic sectors like manufacturing and infrastructure and create income-generating avenues in the rural economy. This also includes revisions in GST slabs to create a low tax economy.
Institute a supportive scrapping policy: Earlier this year, the FM announced a scrap page policy aimed at shunting out old vehicles and increasing production. The policy is aimed at serving the twin objectives of reducing emissions and boosting consumer demand. The Government must ensure a quick rollout of the scrap page policy to encourage the replacement of older vehicles and must also lay down positive incentives for customers to push the disposal of older vehicles. The incentives may include exemption on road taxes for consumers and low interest loan schemes for purchase of new commercial vehicles. According to the Society of Indian Automobile Manufacturers (SIAM), the commercial vehicle industry suffered a decline of 22 per cent in sales between April and November 2019. We hope a supportive scrapping policy can help revive some of this lost demand.
Extend FAME II benefits to E-bicycles: E-bicycles have recently been categorised under EVs to get tax benefits. However, they do not get the benefits designated under the FAME-II scheme. We hope the Government recognises the need to promote e-bicycles as much as the need to promote e-cars. While e-cars address the concern of pollution, they do not solve the problem of traffic congestion. E-bicycles are both eco-friendly, space-friendly and also offer a viable solution to the anxiety that comes with lack of charging infrastructure as they can be easily pedalled back in case of battery loss.
Policy measures to reduce viability gap of EVs: More measures might be needed to reduce the viability gap of EVs. The Government must support the sector in different ways to make EVs more affordable and viable. These measures can include exemption on road tax, lower power tariffs for charging EVs, exemption of parking fees for EV users and exemption of permit costs among other measures.
(The writer is Chairman and MD of a leading motor company)
Formulate retail policy soon
India is one of the fastest-growing economies in the world and the drivers of this growth can be credited to the burgeoning millennial population, growing middle-income households and an increasing representation of women in the workforce. All these factors contribute to economic growth by boosting retail consumption, thereby providing a highly positive outlook for businesses in the country. Meanwhile, as far as the market potential is concerned, the retail industry provides a robust platform for multiple stakeholders, including the consumers, distributors, manufacturers and additional sectors like transportation, logistics and so on. In fact, according to the Retailers Association of India (RAI), around 43 million people in the country are employed in the retail sector and the industries that support those businesses. In fact, the sector is generating employment at a fast pace, taking the second position after agriculture in terms of creating direct as well as indirect employment opportunities.
Despite the retail industry’s positive contribution towards the country’s economy, 2019 witnessed many players struggling to sustain the growth chart. Even though they are expecting growth to rebound in 2020, it will all depend on factors like the recovery in the manufacturing and other sectors, availability of finances in the hands of consumers to make easy retail consumption decisions and of course, the forthcoming Union Budget 2020 that will be presented by Finance Minister Nirmala Sitharaman on February 1. This will be her second Union Budget and the retailers have many expectations from the Modi Government in its second term.
Accelerating the process of national retail policy: It is a harsh reality that India to date has been unable to develop a robust manufacturing sector despite two decades of economic and trade liberalisation. Structural issues like scarcity of resources in the form of raw materials and trained labour force, lack of capital and credit facilities and inadequate infrastructure are causing major hindrances in the operations of small retail traders. This is also affecting the export-competitiveness of a large number of Micro, Small and Medium Enterprises (MSMEs). So, in this year’s Union Budget, these players want the Government to speed up the formulation and implementation of the National Retail Policy, as this would provide a significant boost to the development of 65 million small traders in the country’s retail sector and expedite/promote the ease of doing business in the country.
Promotion of digital and modern retail: The Indian retail industry is currently dominated by e-commerce and it is expected to grow to $200 billion by 2026 driven by rising smartphone penetration, the launch of 4G networks and increasing disposable incomes. That said, the competition is only increasing day by day. Bearing in mind the new-age consumers’ speedy adoption of technology, offline retail players must also modify their strategies to keep their brands relevant, the brand experience even and their products and services accessible across multiple channels. They are expecting the Government to modernise its retail by upgrading the use of Point of Sale Machines that would help retailers to access the customers’ information and efficiently manage their inventory, thereby improving their revenue-generation and profitability.
Boosting the consumption story: Due to the deceleration in the economy, retailers both small and premium ones, are bearing the brunt of a consumer class that has become careful in its purchasing decisions. This slowdown in consumption has dampened the demand in the retail segment. Retail players are hoping that the Union Budget will be pro-consumption and will come out with a slew of measures that will make small-ticket credit and additional cash accessible in the hands of the middle class. This will positively impact the retail industry by increasing demand and also provide a much-needed boost to the economy.
GST on clothes: Clothes are subject to five per cent GST if the taxable value of the goods is less than Rs 1,000 per piece, whereas, the sale value of clothing that exceeds Rs 1,000 is subject to 12 per cent GST. Retailers expect the Budget to focus on increasing the threshold for the five per cent slab to Rs 2,000 from the Rs 1,000 that is levied at present to give a fillip to the sector.
(Writer: Rachit Chawla/ Pankaj Munjal/ Ravinder Singh; Courtesy: The Pioneer)