Budget 2015: Expect single-window clearance and increasing role of e-governance to fast-track infra projects

By Keval Doshi and Rahul Patni, Partners, EY India

The Modi led Government is all set to announce the ‘much awaited’ Union budget 2015 which is poised to be a mixture of populist and reformist measures to strike a balance between the expectations and fiscal prudence and also to lay down a clear and a stable policy framework to boost the Indian economy.

Amongst others, the key focus areas for the Government would be to support the PM’s blue eyed ‘Make in India’ vision which is to play a vital role in addressing many issues faced by the country today. The success of ‘Make in India’ would hinge on the ability to attract foreign investment and to boost the business environment in India.

While the campaign emphasises on increased impetus to growth across key 25 sectors, the focus should be on certain select sectors which merit immediate attention.

For instance, on the infrastructure front, there is an urgent need for budgetary allocations towards large projects such as smart cities, development of freight corridors, low cost airports etc alongwith measures to improve pace of existing programmes in highways, ports, railways, and urban infrastructure. There is also a need to update policies by making laws that are liberal, including lower tax rates, enhanced tax breaks for investments in the sector and measures to make available cheaper and efficient funding to boost the SME sector.

Also, implementation guidelines for a single-window clearance and increasing role of E-governance to fast-track infrastructure projects need to be clearly spelt out.

On the defence sector, recently, while inaugurating the 10th edition of Aero India (in Bengaluru), the PM vowed to end India’s status as the world’s number one defence importer with a covet to enable India to manufacture 70% of the hardware domestically. This promise requires inviting foreign firms to become India’s strategic partners instead of vendors and would demand greater infrastructure, a sound business climate, clear investment policies and a stable and predictable tax regime which ensures non-discrimination against domestic manufacturers instead of vendors.

Next on the agenda could be to boost the Power/ energy sector, which is a key driver to manufacturing. On the Conventional front, production of coal and gas has not grown adequately and is affecting various projects. The Government must ensure that domestic coal is available to all projects. Steps can be taken to ensure fast auction of remaining coal blocks. Gas production has also taken a hit and there is a need for implementation of gas pooling and viability support framework for the stranded gas projects.

On Renewable power, a higher budgetary allocation is required for funding of grants, viability support as well as incentives to be offered under GBI framework. Clarity on the timelines and a broader policy framework is needed to scale up the solar capacity addition programme of 100 GW.

Further, programs such as Digital India, Smart cities and Skill India require the creation of technological infrastructure that will need budgetary support. A policy framework for industry and SME’s in particular that encourage innovation and adoption of technology, can boost the ‘Make in India’ initiative. Further, considering that R&D is directly proportionate to manufacturing growth, R&D activities in the respective sectors should be encouraged by providing necessary incentives and concessions.

Stable and transparent tax regime

Fiscal consolidation, expenditure management and upgradation of tax infrastructure in critical areas need attention in the Budget.

As can be sensed, the focus now would be on an effective implementation of these measures and building trust between the tax administrators and taxpayers. A facilitative tax environment is crucial to creating a more positive image for India as an investment destination and to make the ‘Make in India’ mission- a success.

At present, the most awaited tax reform in India is the GST, which is expected to help in increasing revenue collection and reducing significant costs. While the Centre and the States are still engaged in discussions on the design of the tax system, the industry hopes for an early consensus for a comprehensive GST that will put the economy on the high growth trajectory.

One of the other important aspects of the ‘Make in India’ campaign is to address the inverted duty structure to incentivise domestic manufacturing. If not corrected, it will promote imports and sale of finished products rather than local manufacturing.

On the direct tax front, while the Government has already embarked on a journey to deliver a litigation-free and a certain tax environment, our tax laws today yet have many areas which

are subject to multiple interpretations, of which at least a few need to be addressed at the earliest. For example- the rule on taxability of indirect transfer of assets in India requires detailed guidelines on the methodology to compute the tax liability in India. Further, deferment of the General Anti Avoidance Rules (GAAR) till the time tax regime stabilises would be helpful.

A fast track system to redress taxpayer’s grievances would be welcome. Further, monitoring system for ensuring accountability and performance management in tax administration would resolve many problems faced by taxpayers.

To conclude, it would be interesting to watch how the FM is going to spell out his strategies for a higher growth path. To ensure success of ‘Make in India’, it is imperative that the focus remains on facilitating ‘ease of business’, labour market reforms and skill development initiatives. Although, most of these would be in the domain of administrative reforms, the broad vision may possibly be reiterated in the budget.

(Views expressed are their personal)