Prime Minister Modi has often mentioned that India enjoys the 3D advantage of democracy, demography and demand. Translating the demographic advantage into a real growth relates to empowerment of our people through employment. Budget 2015-16 provides a good chance to boost these two critical livelihood instruments.
According to the economic survey, almost 60 million jobs were created in 1999-2000 to 2004-2005. This then slowed to 1.1 million in the period up to 2009-2010, but touched 13.9 million in the two years afterwards. As per various estimates, about 10-12 million new jobs would have to be generated each year for the next 10-20 years in order to employ new workers.
This appears to be a huge challenge but is doable provided right policies are put in place to encourage firms to employ more workers. At the same time, it is critical to build capacities through education, skill development and healthcare so that everyone is empowered.
The government has already made a good beginning in prioritising ease of doing business indicators and addressing bottlenecks. Industrial Entrepreneurs Memorandum and industrial licensing systems are online 24x7, while labour inspections and self-certifications have been eased for medium and small enterprises. Legislation on land acquisition, mining, arbitration and other areas has been fast-tracked. The finance minister has also reiterated his intention of providing a friendly tax regime.
The Budget can take this forward in several areas such as financing and tax administration. Financing aspects would require attention to further strengthening the corporate bond market to make it more efficient. More retail investors can enter the market if capital gains tax on debt investment was on par with tax on equity instruments. Indian companies should also be allowed to issue rupee-linked bonds overseas.
The Budget needs to address tax dispute mechanisms, retrospective taxation and deferment of General Anti-Avoidance Rule (GAAR) for two more years. The “Make in India” campaign is an excellent initiative to create jobs in the manufacturing sector, which currently contributes about 18 per cent to the GDP. Initiatives to set up national investment and manufacturing zones and industrial corridors should be speeded up with clear timelines so that they can emerge as engines of growth.
Specific measures that could promote investments include extension of investment allowance to the infrastructure sector, cold storage operations, generation and transmission of power, and so on. In particular, SEZs should be exempted from minimum alternate tax and dividend tax. The micro, small and medium enterprise (MSME) sector can be encouraged by revisiting the definitions for micro, small and medium enterprises which were laid out in 2006.
Since then, inflation and rupee appreciation have raised the cost of plant and machinery, thereby limiting the scope of MSME benefits. Apart from the definition, MSMEs face issues in public procurement policies and despite the mandated proportions to be sourced from MSME, more PSUs must buy their requirements from the MSME sector. Delayed payments are a big challenge for MSME and needs to be resolved.
MSMEs should also enjoy easy access to finance. Cost of finance must be maintained at the same rate as for large enterprises. Dedicated SME equity funds with tax breaks can be made available to finance their growth. The Budget should consider a separate tax slab for registered SME in the manufacturing sector. MSME also need a Central climate-friendly technology fund to enable them to access such technologies.
While these steps would encourage entrepreneurship, there is need to focus on skill development as well. The newly-established ministry of skill development and entrepreneurship is a big positive for the skill mission, and we hope that strong measures would be taken to address the issue. The amendments in the Apprentices Act were welcome and would encourage the practice of apprenticeship. On its part, industry has been collaborating in Sector Skills Council that develops curriculum and assessments for specific sectors. These efforts would be boosted by exemption from service tax to institutions providing such services.
However, innovative means are the need of the hour to develop an extensive, strong and functioning institutional infrastructure for skill development. The government would need to consider skill training in schools as well as large-scale centres through a mix of financing options, earmarking funds under projects such as Mahatma Gandhi National Rural Employment Gurantee Act, and industry interventions.
At a time when an aspirational India is on the rise, all stakeholders including government, industry and civil society need to come together to drive the forces of growth. Budget 2015-16 would be much anticipated in order to strengthen and fast track this process.
The writer is president, Confederation of Indian Industry
