At a time when the re-elected government will present its maiden Budget (for the year 2019-20), MVIRDC World Trade Center Mumbai has prepared a comprehensive list of suggestions in its pre-Budget Memorandum. This Budget must contain measures to address agrarian distress, resolve the NBFC crisis and kickstart consumption and investment demand.

Releasing the pre-Budget Memorandum, Mr. Vijay Kalantri, Vice Chairman, MVIRDC World Trade Center Mumbai says, “India’s consumption demand, which is the major engine of economic growth, is losing momentum as is evident from decline in sales of passenger vehicles, two wheelers, fast moving consumer goods etc. Private consumption contributes around 59 per cent to the overall GDP of the country. Therefore, the first policy priority of the Union Budget will be to drive private consumption, especially rural consumption in the economy in ways that do not compromise the fiscal prudence of the government”.

He suggests it may be difficult for the government to provide income tax exemptions to spur consumption at a time when its tax collection is falling considerably and it cannot breach the fiscal deficit target of 3.4 per cent. Hence, the only sustainable way to boost consumption is by creating livelihood opportunities for rural people, ensuring farmers get remunerative price for their produce (through effective procurement mechanism), expediting planned investment in rural infrastructure etc. He further suggests government must allocate more funds for agriculture investment. It is time that the government must reconsider its allocation for various farm input subsidies and spend more on agriculture investment.

Recommending ways to reduce post-harvest losses, Mr. Kalantri says “The government must collaborate with the private sector to set up post-harvest infrastructure such as storage facilities and pack-house near the farm gate. As a first step, the government may set up procurement centres for perishable goods such as fruits, vegetables and dairy near farm gate. These procurement centres can be linked to rural haats, which are informal markets mostly owned by local bodies and gram panchayats. The Union Budget 2018-19 announced the upgradation of 22,000 rural haats into Gramin Agriculture Markets (GrAMS). The government must partner with private companies to upgrade these rural haats with all modern facilities for post-harvest processing and storage”.

Stressing on the need for crop diversification, he says “For several decades, Indian farmers have been incentivized to grow water-intensive crops such as rice, wheat and sugarcane because of the existing procurement and state-assured pricing policy. Although sugarcane is grown on just 4 per cent of the cultivated area in Maharashtra, the crop consumes 65 per cent of irrigation water. Similarly, rice and sugarcane together consume 70 per cent of irrigation water in Karnataka even as they are grown in only 20 per cent of the cultivated farmland. Growing such water-intensive crops in chronically drought prone areas will result in early depletion of ground water”.

For handholding the stressed MSME sector, Mr. Kalantri says “Over the course of time, lakhs of MSMEs across the country have become sick because of adverse market condition, delayed payment by customers, excessive competition and other factors. The Telangana government has set up an Industrial Clinic to rehabilitate sick MSMEs by offering them financial and consultancy support. The Clinic offers managerial, technological and marketing support to revive, rehabilitate and restructure sick, but viable MSMEs. Government of India must encourage state governments to set up MSME Clinic on the lines of Government of Telangana”.

In his interaction with MVIRDC World Trade Center Mumbai officials, Mr. Sunil S. Bhandare, Director, The Saraswat Cooperative Bank and President - All-India Bank Depositors’ Association says “The key macro priorities for the Budget include reduction in corporate taxes, softening of the cost of capital – lending rates, corporate bond market rates, etc., public sector infrastructure investment – preferably of the Public Private Partnership variety – to “crowd in” private investments, reining in fiscal deficit, and more importantly, the broader annual dimension of public sector borrowings requirement (PSBR), selective incentivizing of corporate investments, preferably in labor-intensive industries, and reviving of private consumption expenditure through both rationalization of GST and other indirect taxes as well as effective channeling of public expenditure programs”.

Mr. Bhandare opines that effectively, the budget has to unfold more tax-friendly environment through a promise of (a) progressive (if not instantaneous) reduction in the corporate tax rates across-the-board from the present 25% to 20% spread over next 3 to 4 years given the extant budgetary constraints; (b) further rationalization of the GST rates structure along with removal of several glitches in its implementation and administration; (c) initiating a new Direct Tax Code (already a work-in-progress for almost a decade now) that is in conformity with the changing needs of modern corporate businesses; and (d) improving the ease of doing business, and in particular helping out assesses and tax authorities in minimizing resort to newer tax litigation, and facilitating the settlement of existing tax disputes.

He says “The economy is desperately waiting for unleashing of forces of recovery and resurgence. There are all the basic ingredients of resilience at the macro level – moderate inflation, comfortable forex reserves, manageable current account deficit, banking sector gradually regaining from its massive NPA crisis, corporates raring to get started with their programs of expansion and new investment after their long strategic pause of last three or four years, and so on.

In this contextual framework, what is expected is a clear direction from the budgetary strategy even in the midst of limited fiscal space. Equally important are going to be the government’s non-budgetary policy initiatives for stimulating the overall investment and growth outlook. These would include reforms of labor and land markets, further improvement in the ease of doing business, making tax administration more proactive and investment-friendly, further liberalization of FDI, strengthening institutional structure of cooperative federalism for ensuring more participative reforms by the Center and States to promote balanced and inclusive economic development”.

Talking on the need to rationalize Dividend Distribution Tax, Mr. Firoze B. Andhyarujina, Senior Counsel, Supreme Court of India saysWhen a company earns profits, taxes are imposed on these profits. After earning profits, when the company declares, distributes or pays dividend, it has to pay Dividend Distribution Tax. Then, when it is passed on to the shareholder, if the amount of dividend is greater than Rs. 10 lacs, it is again taxed in the hands of the shareholder at the rate of 10 per cent. So, this amounts to triple taxation, first on profits, then on dividend, and finally on the shareholder’s income. The government should rationalize this triple taxation system”.

Secondly, he says, several people have recommended that in case of the above, the tax should be imposed on the shareholder and not the company. In other words, the Dividend Distribution Tax should be replaced by taxing only the recipient. If this is adopted, it will be detrimental to increasing revenues for the government since a lot of bogus or fictitious accounts will be created and after collecting the dividend, these accounts will be closed. Therefore, the government should ensure that the tax is imposed on the companies at the time of declaring dividend rather than taxing the recipient shareholder.

Suggesting the need to abolish Long Term Capital Gains Tax imposed on shares sold in the stock market, Mr. Andhyarujina says “In most dynamic and progressive economies, there is no Long Term Capital Gains Tax. We should also abolish this tax and instead increase the holding period of shares from 12 to 18/24 months to be eligible for tax benefits so that genuine investors may not be hit by this regressive tax”. He further suggests there should be no Long Term Capital Gains Tax imposed on the sale of shares which are sold due to meek prospects of a company, and the entire proceeds are reinvested into some other company.

Expressing his pre-Budget expectations on Indirect Taxes, Mr. M.S. Mani, Partner, Deloitte India (Indirect Tax) saysThe Union Budget cannot make any announcements related to the GST law as this is the prerogative of the GST Council; however following are the expectations for various sectors: simplification of Goods and Services Tax (GST), reduction in existing rate of import duty on both gold and diamonds, reduction in import duty on polished diamonds to 2.5% from the current 7.5% and a cut in import duty on gold from 10% to 4%; in the energy, resources & industrial sectors - provide a roadmap for the stabilization of the GST law – highlight issues which will be addressed in the short term and provide a longer term plan as well, provide some insight on when and how real estate and petro products especially CNG and PNG will be brought within GST, share insights for administrative changes that are being considered for a better administration of the GST law, share insights on how GSTN related issues will be addressed quickly, a portion of coal cess should be allocated as VGF for combining new wind/solar and existing gas based power plants to utilize LNG as this would improve usage of gas and also promote cleaner fuels replacing coal, Budget allocation to be made for construction of north east pipeline which would connect the north east states to main gas grid and improve utilization of gas in this eco-sensitive region”.