Budget 2014: Out-of-the-box ideas for FM Jaitley to manage coffers & fulfil hopes
Associate Director - Tax & Regulatory practice, EY
Two aspects that would be weighing on the finance minister's mind as he presents his maiden Budget are the grim fiscal situation and people's great expectations from the government to announce an action plan for reviving investments and economic growth. In the first two months itself of the current financial year, the fiscal deficit has crossed 45% of the interim budget estimates for 2014-15. With the global crude oil prices moving up due to Iraq crisis and likelihood of rain delay/deficiency that could impact food inflation, it is not an auspicious beginning to an even otherwise challenging year.
The economic revival would need reforms on several fronts. The issues outlined below are some such aspects that may be considered by the government in this context.
One of the sectors that clearly need supportive policies is the manufacturing sector. Compared to the average growth in three years over 2005-06 to 2007-08, the average growth over 2011-12 to 2013-14 fell for the manufacturing sector by as high as 9%. Construction and mining sectors also had the same fate with a fall of 7% and 5% respectively during the above mentioned period.
All these are critical and employment intensive sectors but have been suffering from the problem of idle capacity due to regulatory restrictions as well as fall in demand. Government should clear regulatory road blocks in major infrastructure and other investment projects and focus on institutional changes to smoothen the process of investment. For example, complete transparency should be built into handling natural resources such as land, minerals, coal and spectrum. Moreover, the environmental clearances can be shifted to a single 'Green Regulator'.
Another area that needs attention is the greater use of non-conventional energy. To set an example, all central government undertakings, government department buildings, educational institutions and medical institutions should be mandated to set up grid-connected solar/non-conventional energy facilities. These users are claimants of priority power supply from the grid and at a lower cost. India has a natural potential for generation of solar power. Small quantities of power generated by these buildings can be used to partly fulfil the requirement of the building occupants, thus easing any supply bottlenecks. The surplus, if any, can be fed into the grid.
It may also be kept in mind that the price of power generated from solar plants installed today is at par with or lower than the commercial tariff for consumers. In fact, if one were to consider the opportunity cost of using the fossil fuels and arrive at a 'shadow cost' after taking into account the vulnerability of the Indian economy to currency fluctuation, subsidies and oil cost, the shadow cost will be 30% higher than the actual cost.