India has seen major structural reforms in 2017-18 and, as the economy adjusts to the new era, there has been some impact on growth, as reflected in estimates of both CSO as well as the Economic Survey. This is along expected lines as any major structural change causes disruption and uncertainty in the teething period.
The positives from these reforms are already starting to come in. There has been greater formalisation of economy post demonetisationand GST. Data on taxpayers in the Survey clearly points to that. There has been a 50% increase in the number of indirect taxpayers post GST and an addition of about 18 lakh in individual income tax filers since November 2016. The government has been proactively working towards further improvement in GST structure and we look forward to a convergence to fewer tax slabs and inclusion of all sectors within GST.
As the system stabilises and tax base widens, the economy will start reaping more benefits of reforms. This optimism is reflected in growth prospects highlighted by the Survey. The improvement in ratings by Moody’s also reaffirms prospects of India’s positive growth on back of reforms. We expect the government to further this reforms-driven agenda in the coming year. At the same time, there is a need to push growth momentum strongly now and I think the upcoming Budget offers that window of opportunity.
Various Ficci surveys have shown private investment is yet to pick pace as capacity utilisation remains low. Ficci has, therefore, recommended a cut in the corporate tax rate in the Budget with a view to incentivise private sector investments.
It is also important that Indian industry retain its competitiveness, especially when other countries are making significant cut in their corporate tax rates. Changes introduced in the US Tax Code — a massive cut in corporate tax rate from 35% to 21%, abolition of alternate minimum tax and allowing carry forward of losses for indefinite period — are significant. We need to study the implications and make appropriate changes in our own tax policy to remain globally competitive.
A lower corporate tax rate would also lead to an increase in entrepreneurship as well as promote greater formalisation. The government should look at bringing headline rate down from 30% to at least 27.5% in the Budget, as a start. Ficci has suggested creation of regulation freezones, especially along ports, to boost investments in innovative and new age sectors, as also to provide an uplift to exports, which have significant scope for growth. Given the positive outlook on global growth, an added policy push to export-oriented sectors can provide immense support to India’s overall growth.
The Economic Survey highlights how the top 1% of firms account for only 38% of India’s exports, unlike other comparable economies, where concentration is much higher. The apparel sector has seen higher exports after incentivisation and we hope this is extended to other sectors as well.
There is also scope for rate cuts, which can provide a major boost to private investments. Going forward, we hope RBI will give equal consideration to growth concerns, given the fact that inflationary pressures are largely due to supply side factors on the agriculture front. We look forward to added focus on the procurement, distribution and risk mitigation measures. There is also a need for greater support to R&D in agriculture with focus on promoting climate resilient seed varieties. Additionally, there is a need to have an appropriate framework for contract farming.
The government has done well to stick to an agenda focused on reforms, despite the expected short-term setbacks. A continuation of this policy will help further strengthen the country structurally. At the same time, measures to boost growth, along with significant public sector expenditure can help drive private sector investments.
As these pick up, the collateral boost to the economy could potentially provide us with growth rates consistently exceeding 8% and maybe even touching 10% in the coming years. economictimes