Corporates and the Parliament
23 September 2014
Discussing the synergies between the finance minister's Budget speech and the prime minister's Independence Day address, retired IAS officer Vivek Agnihotri, who was a former secretary to government of India, and secretary-general, Rajya Sabha, marvels at the speed of implementation of decisions by the new government
Two events of recent occurrence, like no other, have focused on the agenda of the new government of India, in general, and of Mr Narendra Modi, the self-confessed "prime servant" of India, in particular. First, of course, was the Budget speech of the finance minister of India on 10 July 2014. The other was the free-flowing and impassioned public address of the prime minister on 15 August from the ramparts of the Red Fort.
During of the latter of the two events, Mr Modi, not using bullet proof glass protection, rolled out his vision of a clean, green and skilled India in which everyone would be assured of a life with dignity. It was an attempt to evoke everyday civics, replacing empty policy as the first step to development, as Shiv Vishwanathan stated in his lead article in the Times of India the next day.
Mr Modi sought to realise this vision working in collaboration with all the stakeholders. He exhorted the neighbouring countries to join in a sub-continental project to end poverty. His appeal to the neighbouring countries to shun violence and work in the spirit of co-existence, is redolent of Gautam Buddha, Ashoka, Vivekananda and, of course, Mahatma Gandhi.
Branding 15 August variously as a ''national festival'', ''festival of freedom'', ''pious occasion of India's independence'' and ''sacred festival of independence'', Mr Modi envisioned India attaining its appointed destiny in the comity of nations as ''world guru'' as predicted by Swami Vivekananda. In particular he emphasisd his resolve to ''walk together, talk together and think together'' (on the basis of a strong consensus) to take the country forward.
He highlighted the need to make the government more focussed and dynamic in order to fulfil the great expectations of the masses. There is an urgent need to refine our national character and, in every situation, progress from thinking about 'what is in it for me' to 'what is in it for the nation and the people'. The government, ultimately, is not an assembled entity but an organic unity and a harmonious whole with one aim, one mind, one move and one direction.
He prescribed a two-pronged approach to taking the country forward - good governance and development. To realise this goal, he underscored the need to proceed with public-private partnership and encourage innovative initiatives under corporate social responsibility. In order to promote development in its true sense, the youth of India has to be imparted appropriate and adequate skills, which are in demand within and outside the country. The mission is to strive for 'Skill India'.
In his 15 August address to the nation, Mr Modi also laid great accent on promoting the manufacturing sector to provide employment to the youth of the country. According to him the future of the country lies in manufacturing. He, therefore, gave the slogan of "Make in India" to be spread far and wide across all the nations of the world, by creating a pool of young people who win the hearts of investors abroad by virtue of their dexterity and hard work.
He also put forward the maxims of 'zero defect' and 'zero effect' (that is, no negative impact on environment). He outlined the vision of 'digital India' in which all villages will have broadband connectivity in order to promote e-governance (implying easy, effective and economic governance) paving the way for good governance. He further laid stress on promoting tourism in order to create employment for all.
'Cleanliness is next to godliness' was the mantra proposed by Mahatma Gandhi, the father of the nation. Mr. Modi wanted India to celebrate the 200th birth anniversary of Mahatma Gandhi in 2019 by providing toilets to every household. A 'Clean India' campaign will be launched on 2 October 2014 (birth anniversary of Mahatma Gandhi) for this purpose. He exhorted the corporate sector to prioritise the provisioning of toilets in schools under their corporate social responsibility spend.
Mr Modi announced that the Planning Commission, which had outlived its utility, will soon be replaced by a new body with a new design and structure, a new soul, and a new faith, forging a new direction to lead the country based on creative thinking, public-private partnership, optimum utilisation of resources and harnessing of youth power. He also emphasized the need to empower the state governments to fortify the federal structure. He thus announced the end of the Plan Era and articulated his desire to build Team India.
He urged the Members of Parliament to use their Members of Parliament Local Area Development Scheme (MPLADS) to contribute to the mission of providing toilets in all schools by 15 August 2015 as well as to develop model villages (based on certain pre-defined criteria) in their respective constituencies.
He also announced the Prime Minister's 'People's Wealth Scheme' (Jana-Dhana Yojana) , under which the poor and disadvantaged citizens would be provided the facility of opening a bank account with a debit card and an overdraft facility as well as an accident insurance of rupees one lakh (hundred thousand).
Mr Modi referred to the Budget recently presented by his government to underscore his commitments. The themes of promoting manufacturing, skill development and sanitation find pride of place in the Budget, 2014-15. To begin with, being the first Budget of the new government, it is a saga of new programmes and scheme. On the whole it has listed over 60 projects for preliminary investment; and 29 of these have been provided a notional allocation of Rs100 crore (1 billion) each.
The Budget 2014-15, however, begins with some observations regarding current economic situation and challenges. It expresses concern about the challenges arising on account of sub-five per cent growth and double-digit inflation. The Budget is depicted as an embarkation on a journey towards sustained growth of 7 per cent to 8 per cent or even more within the next three to four years along with micro-economic stabilisation requiring bold steps to enhance economic activities.
A sustainable growth of 4 per cent in agriculture is also sought to be achieved along with a fiscal deficit of 4.1 per cent of the GDP and a revenue deficit of 2.9 per cent. It highlights the need to revive the manufacturing and infrastructure sectors, need to improve the tax to GDP ratio and to increase the non-tax revenues. And all this could be achieved following the mandate of the Prime Servant: ''development of all with the support of all''.
Some administrative initiatives have been proposed to work toward the government's vision, mission and objectives. It is affirmed that the sovereign right of the government to undertake retrospective legislation has to be exercised with extreme caution and judiciousness.
An investor-friendly stable and predictable taxation regime has to put in place. A high-level committee to interact with trade and industry on a regular basis to identify areas of concern in tax laws will be put in place. An expenditure management commission to look into expenditure reforms is proposed to be constituted. Convergence with International Financial Reporting Standards (IFRS) by adoption of the new Indian Accounting Standards by the Indian Companies would be sought.
Some of the economic initiatives listed in the Budget include, raising composite caps in the insurance sector (the Bill has been referred to a Select Committee of the Rajya Sabha) and foreign investment to 49 per cent; setting up 100 'smart cities'; and incentives for real estate investment trusts (REITS) and a modified REITS for the infrastructure sector (INVITS), which would attract long-term finance from foreign and domestic sources. For this purpose, a conducive tax regime for REITS and INVITS would be set up in accordance with the regulations of the Securities and Exchange Board of India.
'Clean India'(Swachha Bharat) movement was announced to cover every household with sanitation facilities by 2019. Slum Development will be included in the list of Corporate Social Responsibility (CSR) activities to encourage private sector participation in it.
For the industrial sector, in general, ministries and departments of the union government shall integrate their services by 31 December 2014, through a single window IT Platform (e-Biz) for delivery of services on a priority basis. Development of industrial corridors with an emphasis on smart cities linked to transport connectivity in order to spur growth in manufacturing and urbanisation will be accelerated.
For the Micro, Small and Medium Enterprises (MSME) Sector, the Budget announced launch of 'Skill India' programme, which was reaffirmed by the prime minister from the ramparts of the Red Fort on 15 August, " to skill the youth of the country" with an emphasis on employability and entrepreneurial capabilities. Further, a committee will be set up to examine and report on the optimal financial architecture of MSME sector, to remove bottlenecks and to suggest new rules and procedures, within three months. The definition of MSME will be reviewed to provide for a higher capital ceiling.
A programme to facilitate backward and forward linkages with the multiple value chain of manufacturing and service delivery would be put in place. For inviting venture capital in the MSME sector, a Rs10,000-crore fund to act as a catalyst to attract private capital by way of providing equity etc. would be set up.
Some of the highlights for infrastructure development in the Budget proposals were - provide support to people-public-private-partnership (PPPP), and development of SEZs in Kandla and Jawaharlal Nehru Port Trust (JNPT).
A Green Energy Corridor Project is going to be implemented to facilitate evacuation of renewable energy across the country. Changes in the Mining Act would be brought about in order to encourage investments in the mining sector and promote sustainable mining practices.
As regards the Banking and Insurance Sector, a time-bound programme as a Financial Inclusion Mission would be launched on 15 August (and indeed it was done). The banks would be encouraged to extend long-term loans to the infrastructure sector with flexible structuring. Banks would also be permitted to raise long-term funds for lending to infrastructure sector with minimum regulatory pre-emption.
The taxation proposals have sought to introduce measures to revive the economy, promote investment in manufacturing, rationalising tax provisions to reduce litigation, address the problems of inverted duty structure in certain areas, in addition to tax reliefs to individual tax payers. As far as the manufacturing sector is concerned, investment allowance at the rate of 15 per cent would be allowed to a manufacturing company that invests more than Rs25 crore in any year in a new plant and machinery. A ten-year tax holiday has been extended to the undertakings which begin generation, distribution and transmission of power by 31 July 2017.
As far as the indirect taxes are concerned, basic customs duty (BCD) has been reduced on certain items in order to boost domestic manufacturing and to address the issue of inverted duties. BCD has been reduced also on certain items in the chemicals and petrochemicals sectors, in order to encourage new investment and capacity addition. Steps are proposed to be taken to boost domestic production of electronic items and reduce our dependence on imports.
This was highlighted in Mr. Modi's 15 August address when he exhorted youngsters to resolve to manufacture at least one item (may be a micro or small industries product) so that our country need not import it in future. Concessional BCD of 5 per cent has been extended to machinery and equipment required to set up a solar energy plant. This again was echoed in Mr. Modi's call for 'zero effect'. To subserve the same objective, certain items connected with development of renewable energy have also been exempted from excise duty.
While for passenger facilitation, the free baggage allowance, has been increased from Rs35,000 to Rs45,000, the service tax base has been further broadened. What will happen with the introduction of country-wide Goods and Services Tax (GST) is anybody's guess.
Now since the shape of the cake has been adumbrated, let us look at its icing. The new government completed its 100 days soon after Modi's return from his historic trip to Japan. In the TOI-IPSOS Survey on 2 September, 58 per cent of the respondents from mega cities across the country gave a thumbs-up to Modi's government by rating it as good or excellent.
Some of the promises made in the budget and Mr. Modi's 15 August speech have already been given effect to. Jana-Dhana Yojana (people's wealth scheme) has had a rousing start with 15 million persons getting registered on day one. Imagine 15 million investors subscribing to a public issue on day one!
The Apprentices (Amendment) Bill, 2014 has been passed by the Lok Sabha (the Lower House), as a first step in the direction of labour reforms agenda of the government. Of course, the Budget has been approved by the Parliament. Within four days of Modi's declaration of 'Clean India' movement two major corporate – Tata Consultancy Services and Bharti Foundation (an arm Bharti Enterprises) – announced a total expenditure of Rs200 crore (Rs2 billion) as part of their CSR initiative to construct toilets in schools.
But as a lead article by Srivatsa Krishna (a colleague) in The Times of India dated 2 September points out, India still waits, with bated breath, for Big Bang reforms, as the government makes haste slowly. The huge mandate that India gave to Mr Modi was, perhaps, for dramatic, discountinuous and transformational change and not for incrementalism.
Wait and watch is the watchword.