ICCK

India’s growth story marches on! The latest advanced estimates of GDP Q3 for FY 2023-24 are stupendous, bucking all the forecasts, and staying above 7.3%; H2 GDP growth as per the Indian government was 7.7%. The forecasts now, with this upbeat mood, suggest that India is quite likely to grow close to 7.3% in FY2023–24. This is on the back of 7.2% in the previous FY.  

Tax reforms 

Current tax reforms have largely been in tax administration. Taking further measures to further improve digital delivery of the tax services can be continued as core of the reforms. On policy, the government should view tax as a tool for fostering growth, investment, and equity. The new tax regime, somewhat restrictive, can be made more acceptable by introducing deductions for home loan interest. Second, instead of raising tax rates above 40% on the ultra-rich, it is suggested to bring a balanced approach. Otherwise, this group looks for alternate country residence. Third, the foreign bank branches are taxed at the rate of 40% plus. This is much higher than our base rate of 22%, thereby creating disparity in corporate tax rates for foreign bank branches. Aligning them around 30%+ can encourage foreign banks to have increased operations in India.  

Infrastructure spending 

Infra spending, physical and digital, over the last 5-7 years has been a major driver of GDP growth, resulting in India’s infrastructure ranking rising from 52 in 2018 to 44 in 2023 on the Global Competitiveness Index. No doubt, this has created significant economic stimulus, compared to other forms of spending.  Acknowledging finite government capacity, a shift towards greater private sector involvement (currently at 85:15 ratio) is essential for infra-augmentation and acceleration. Tax measures, similar to the tax consolidation method used in Malaysia and other countries, can be employed to incentivize private sector participation, albeit with anti-abuse provisions. India also needs to shift away from carbon-heavy infrastructure, given its commitment to climate goals. So, more focus on green energy, electric vehicles, and inland waterways and ports will be required. Urban infrastructure improvement should also remain a priority. 

Credit flow to MSMEs 

Credit gap for the MSMEs in India is estimated to be Rs 25 trillion, almost 62% of the union government’s current FY budget. The sector, severely impacted by the Covid-19 pandemic, is crucial for sustaining millions of workers. MSMEs continue to face revival challenges. Actually, credit flow share to the MSMEs sector has declined, notwithstanding its increase in absolute terms. Also, credit problem in urban areas is more than 39%; 9% higher than in the rural areas. Despite challenges of informality and productivity, addressing the sector’s needs is imperative. Bringing measures such as dedicated loan processing cells in banks, promoting online loan applications can contribute to MSMEs’ revival.

Credit flow to MSMEs 

Credit gap for the MSMEs in India is estimated to be Rs 25 trillion, almost 62% of the union government’s current FY budget. The sector, severely impacted by the Covid-19 pandemic, is crucial for sustaining millions of workers. MSMEs continue to face revival challenges. Actually, credit flow share to the MSMEs sector has declined, notwithstanding its increase in absolute terms. Also, credit problem in urban areas is more than 39%; 9% higher than in the rural areas. Despite challenges of informality and productivity, addressing the sector’s needs is imperative. Bringing measures such as dedicated loan processing cells in banks, promoting online loan applications can contribute to MSMEs’ revival.

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