Budget 2024: Interim Budget measures that Modi govt needs to take to widen doors for global companies
The interim budget would be presented in the midst of positive tailwinds for India like geo-political alignment, stable macro-economy (exchange rates and interest rates under control), 100% FDI allowed in most sectors and the Government’s aspiration of making India a developed country by 2047. Despite the tailwinds, the pace of growth in Gross FDI has moderated after touching a high of USD 85 Billion in FY 22. The sentiment however remains strong given that India’s growth is likely to sustain over the long run. The attractiveness of the Indian market together with an easy and competitive business environment can India an unbeatable proposition for global companies. The interim budget can be leveraged to give this message, especially given that investments decisions are made constantly and there are other countries competing with India to attract FDI.
Ease of doing business in India
Higher investments can be facilitated through improved ease-of-doing business in India. There are several areas where more can be done, such as enabling faster setting up of manufacturing operations, tax certainty, more effective contract enforcement and greater long term policy certainty.
We are living in a dynamic economic environment, where speed of implementation is key. Businesses seeking to set-up manufacturing in India often wish to get underway as soon as they get investment approvals. Therefore, any announcements leading to a “plug and play model” for commencing manufacturing or expansion would be welcome, especially for global corporations with limited history of operating in India. This would entail factors like availability of built-up industrial sheds, access to logistics infrastructure, timely environmental and other regulatory approvals, access of skilled manpower, etc. Implementation of such a model requires formulation of innovative and ingenious schemes/ models that go beyond “single window” clearance frameworks.
Tax measures in Budget
While Government has brought out improvements in tax administration through tax cuts, greater use of IT, faceless assessments, etc, however, there is a need for greater tax certainty, especially with regards to issues that will impact the economics of global supply chains such as transfer pricing. Some of the measures that Government could consider are pre-consultation before introduction of provisions with significant compliance and policy implications, issuing clarifications to queries and strengthening the institutional capacity for advanced pricing agreements (APAs). Rejigging of supply chains require investments and likelihood of disputes can make the supply chain un-economic. Institutional capacity i.e., adequate staff strength with appropriate skills and knowledge for APAs could help reduce the backlog and provide certainty and clarity. Contract enforcement has been commented upon extensively by many commentators including in the past “Economic Survey” of the Government of India. Globally it is recognised that arbitration and reconciliation is the best way to settle disputes rather than going to the judicial system. In India, many arbitration cases land up with the judicial system accompanied by its attendant delays. Steps that improve the effectiveness of the arbitration system and establish India as a global hub for arbitration would be welcome. Further, actions on the part of the Government to refrain from judicial appeals against unfavourable arbitral awards, will send a message that Government means business. Large scale investments require long term stable policies with respect to trade, incentives for manufacturing and changes in regulatory standards. Frequent policy changes or pronouncements that takes businesses by surprise put their investments at risk. Automobile industry is an example, where corporations were impacted from either a surprise policy announcement such as timeline for implementation of new emission standards or in cases where the stated regulatory action was postponed just before it was to come into effect. To conclude, most countries that have grown fast economically especially China or others in East Asia have leveraged global MNCs both for investments and overcoming the technology gap. Development of technology on its own is a time-consuming process with uncertain outcomes. Over the next 25 years, as India plans to grow rapidly, domestic capital and entrepreneurship would need to be supplemented by investments from MNCs. Announcements in the interim budgets related to a level playing field between domestic and foreign capital will give a positive signal to global corporations.
(Rajnish Gupta is Partner, Tax and Economic Policy Group, EY India)
BUDGET FAQs
1. How can the interim budget contribute to attracting more foreign investments to India?
The interim budget can play a crucial role in attracting foreign investments by focusing on measures to improve the ease of doing business.
2. What specific tax measures are suggested by MNCs to enhance the stability of global supply chains in India?
While the government has made progress in tax administration, there is a need for greater tax certainty, particularly in areas like transfer pricing.
3. When will Nirmala Sitharaman present the interim budget?
The Finance Minister will present the interim budget on February 1, 2024
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)