Indian budget, Budget2020, preparation process now over and to be presented on the floor of the parliament by the Union Finance Minister Nirmala Sitharaman on February 1, 2020. The people of India and other stakeholders including the domestic and international private sector and world bodies expectantly waiting and watching over the budget announcements that will set the ball rolling for the fiscal year 2020- 2021.
The budget 2020 presentation will be in amid a persistent slowdown, weak demand and demand for cohesive measures to revive the sluggish economy amid climate action and sustainability issues dominating the national agenda.
Union budget by Government of India is an annual exercise dealing with the central government’s finances, revenues and expenditures. It is notable though those two last budgets are presented in a year when the country is due and goes (like this year) for Lok Sabha elections.
By any measurement, Indian budget exercise for fiscal 2020-21 is different this year, not only because our Prime Minister has involved himself in the exercise, but also due to multiple new political and economic challenges that the nation faces this year amid lowering growth prospects and world bodies such as International Monetary Fund and World Bank cutting India’s growth to 4.8 per cent, the lowest in almost two decades.
It is notable that India is federally structured with Centre and states sharing a relationship that far goes beyond the distribution of fiscal resources and policy measures in a unique way. Our constitution provides for this delicate balance of both power-sharing and distribution of financial resources and law-making powers.
Before the implementation of the Goods & Service Taxes (GST), states did have the power to raise taxes and the proceeds thereby were used for their expenditure. At the midnight of July 1, 2017, State’s power to collect taxes was done away with the GST after its launch. Since then our states were made dependent on revenue share to be made by the Centre, which they never get in time. It has resulted in worsening state finances.
Given the situation as it stands and the imminent budget on February 01, there are still expectations from the government of industry in particular about a slew of measures that the government will present. The expectations are aimed and focused at the revival of the economic slowdown by spurring demand, generating more jobs including finding new areas of interventions. Corporate social responsibility and climate change action- that has potential for government to intervene with revenue collection through green economy, generation of green jobs, inflation in and export of green technologies and setting on a concourse of leading on a green growth budget with deep engagement measures of collaboration with and by Indian industry leaders and subsidiaries of multinational corporations.
Let’s consider the following viable options for the government on the above issues for consideration of our union finance minister:
Corporate Social Responsibility (CSR)
Indian government amended its companies act 1956 in 2013 bringing about a unique focus on corporate social responsibility asking companies to set aside 2 per cent of net profit of average of last three years based on their net worth (INR 500 crore), turnover (INR 1000 crore) and net profit (INR 5 crore) annually.
Some 16,000 companies were brought under this law estimating the collection of 25 billion USD potentially to be spent on the community’s needs and they are well being. This law does not seem to have succeeded despite periodic amendments on the ground with several issues plaguing it ranging from absence of a single window, state- Centre issues and non-transparency around reporting.
If a realistic calculation of corporate contribution through this provision and its effective enforcement can be ensured, the government can reach out to several millions of people on the ground and undertake effective welfare measures to kick off the demand and consumption to rev up the demand slow down especially in rural and semi-urban areas, through an effective public-private partnership model. This effect may also lessen the exchequer’s burden on its resources by as much just by re-organizing the legal provisions and effectively implementing these.
Sustainability and circular economy
One of the issues that businesses seem to be facing in contemporary times is a host of pressure points on their business methods, key supply chain and removal of child labour to secure an equal footing in international trade and commerce. This is more of a consequence in developing economies including those of Indian businesses despite regulatory and legal provisions being in place.
Such issues also dampen the competitive edge in export markets and weigh down heavily on the profit margins of the businesses. At a time that Indian economy is beset by slowdown and lack of demand and consumption, this time can be leveraged both by the government by asking the businesses to put in place measures that enhance their product integrity to leverage the trade space vacated by China owing to its trade dispute with the US without spending much money. Such an approach will help businesses clean up their supply chain and gain a greater competitive edge while spurring economic growth.
Climate Change Action
Government is aware of the consequences that the climate change and environmental issues are capable to deliver to the economy through a host of issues including putting the burden on water, cities, agriculture and health more increasingly moving forward.
This situation also gives the government and private sector opportunities as well to set an action plan that private sector invests in putting an ecosystem in place to spare more in clean technology, products, services while generating green jobs. This will ensure climate protection and also help stakeholders to work toward a cleaner economy and a greener growth. The government may also consider levying environmental tax on pollution and emissions which can be compensated to state governments which suffer from acute fiscal resources and start working toward carbon trading and taxation.
At a time when there is a global slowdown in economic growth with major growth economies contracting due to non-classical developments such as climate change, outbreaks of viruses and trade disputes,
it is a time for Indian government to consider focusing on new areas of growth avenues and address those issues more urgently to involve private sector and public at large to work shoulder to shoulder with both the state and central government to revive growth and lead it to more opportunities in areas like green jobs, clean energy, e-mobility, green technology making India a hub for export of green jobs around and across the world.
This budget for fiscal 2020-2021 can be a definitive direction for India’s future leadership with a focus on green and clean growth driven by public-private collective action.