The economy needs a boost in Liquidity

Ullas Kamath,
JMD, Jyothy Laboratories

The country has been reeling under unsympathetic market conditions. The previous budget was a disappointment, with an expected investment in select sectors only. Given the current economic scenario, we would like to see the Union Budget 2013 to come up with strong measures & economy boosters to restore confidence in the economy and spur growth.

We expect the GST to be rolled out at the earliest possible. The implementation of nationwide GST will help in simplifying the entire tax structure. It would be a win-win situation for both customers & retailers as GST will help in cutting business costs and generate more revenue. If the GST is delayed, there should be a provision for a uniform VAT to be implemented across the country.

In the last budget, the then Finance Minister Pranab Mukherjee had increased the excise duty to 12% from 10%, resulting in an increase in the prices of most of the FMCG products. This was accompanied by a rise in service tax by 200 basis points to 12%. Both these measures had led to lower disposable income in the hands of consumers. Currently, the Indian economy is going through a tough phase and one of the ways to move the economy out of this situation will be to increase consumption along with a spur in investments. We suggest that reduction in the excise duty and restoring it back to the last year’s level of 10% will not only increase consumption, especially in rural India, but will also be a psychological booster for the consumers.

A pilot project in 20 districts of 16 states for direct cash transfer of subsidies is a positive step by the government. The idea of cash transfer can be a game changer for India if it is implemented well. The Finance Minister, in the coming budget, should announce direct cash transfer of subsidy on a large scale. This will not only stop leakages but will increase consumption, thereby helping economic growth.

There is also an urgent need to create employment and empower the backward areas of our country that are lagging far behind the cities. The FM should make a special provision in the budget for employment generation beyond what has already been done so far by various schemes.

One of the main factors for a slowdown in the economy is the high interest rates. Many companies have been facing the pressure of this, as a result of which the investment cycle has slowed down. Inflation has also moderated recently although it is still on the higher side.

A reduction in excise duty on important products and implementation of GST would further lower inflation and make a strong case for interest rate reduction. We are hoping that if things go as expected, there would certainly be room for interest rate reduction by at least 200 bps, which would help companies reduce their interest burden significantly along with boosting liquidity in the economy.