Pranab Da and the Aam Aadmi

Rajeshree Sabnavis

Come March and the "round tables" at the "Aam Aadmi's katta, den, adda" which are otherwise indifferent to the economic parlance are engrossed in assimilating every ounce of the budget proposals to congregate the eventual benefits to the Aaam Aadmi from those extended by the Finance Minister (FM).

The FM on the contrary always has a balancing act to do - meet the expectations of Aam Aadmi, industry, pave way for economic reforms and rein in the widening fiscal deficit! 

But this year, Pranab Da has more than a balancing act to do! With the general election due in May 2014, there may not be a full budget in 2014 and Budget 2013 would be the budget just before the  2014 elections and hence, Budget 2012 is when Pranab Da gets a chance to put in place policies and reforms, which over the next two years would at least  ensure that -

a)     The milestones charted out by the 13th Finance Commission for fiscal consolidation are met;

b)    The  fiscal deficit is maintained at 4.6% as required by the FRBMA;

A closer look at the recent policy initiatives of the Government indicates that congruent policies are being implemented with a clear indication that "inclusive growth" is clearly high on Government's agenda. 

Some of these recent policy initiatives are - National Manufacturing Policy, National Electronics Policy, Foreign Direct Investment ('FDI') in retail with a rider that there is minimum local sourcing and capital investment, rural banking, Securities and Exchange Board of India ('SEBI') in principle nod for setting up separate bourse for SMEs, public private partnership policy, etc 

Long term policy initiatives to develop significant infrastructure (road, rail, air, port), manufacturing base, freight corridors, logistic hubs with greater emphasis on public private partnership ('PPP') clearly indicates the Governments inclination for fiscal consolidation.

Although most of the times the incentives proposed are enshrined in some of these policies itself - weighted standard deduction of 150% of expenditure incurred on PPP projects for skill development in manufacturing sector, exemption of capital gains from sale of plant and machinery of unit in National Investment and Manufacturing Zones, fiscal incentives across the value chain of the Electronics system design and manufacturing, fiscal benefits/ incentives to SMEs/ start-ups, tax pass through status for VCFs with focus on SMEs, etc. 

The expectation of the private sector participants is that Budget 2012 should at least incorporate these incentives in the Finance Act. Industry for that matter any investor who by the way would also be an Aam Admi, would also expect certainty and given that infrastructure is at the core of the growth agenda, the experience at least on the taxation front has not been very smooth sailing what with tax on book profits being introduced on SEZ's or units in the infrastructure space especially, when this levy was not in place when the investments had been made.

Even in case of offshore supplies and service, the question of characterisation of income i.e. business income Vis a Vis fees for technical services and the question before any investor is where does India's jurisdiction end?

One of the hot topics for discussion has always been when is the Land acquisition bill, pension fund reforms, New companies bill, the DTC, GST, which are currently swinging between Parliamentary Standing committees and the Parliament, see the light of the day cause each of these policy initiatives coupled with economic reforms and regulatory machinery foster inclusive growth and rein in fiscal deficit. 

While the fate of the DTC is still unknown, one of the key areas that do raise some concern is would we see the General Anti Avoidance Rules getting introduced in the Budget and would certainty in tax laws again be at stake?

Generally, when we think of Budget and the Aam Aadmi, we limit ourselves to the budget proposals primarily concerning the individual taxation, taxes on consumer goods, inflation, which we all would agree is key , however, with globalisation and liberalisation of the Indian economy and the inclusive growth policy adopted by the Government, the aspirations of Aam Aadmi have also broadened and the "round tables" at the "Aam Aadmi's katta, den, adda" now also debate on the infrastructure development, social sector spending, financial inclusion and literacy, etc. While this may be the case with the individual investors industry at large including overseas investors look for certainty and better and simplistic tax administration.

A close read of the policy reforms during the recent past and those awaiting the final approval are significantly aimed at benefitting the Aam Aadmi in the long run.  All of these policies essentially chart out the Government's vision to create / boost industries, services with well defined objectives inter alia of ensuring employment generation, infrastructure creation - manufacturing and logistics, technology development, market development.

The real key issue would also be incentives for the growth sectors and needless to say a more certain and stable tax environment because as they say a known devil is better than an unknown angel! 

(Rajeshree Sabnavis is Partner, BMR Advisors. The views are personal.)