Given the continuing decline in the investment rate in India, there are hopes that the Budget would reignite the animal spirits required to revive the investment momentum. The corporate sector is looking for a reduction in the corporate tax rate, as promised by the Finance Minister a few years ago but implemented only for smaller firms in last year’s Budget. Given the worldwide trend of reduction in corporate tax rates, India may now have to move in that direction too. With the applicability of minimum alternate tax (MAT) and dividend distribution tax, the overall tax burden on the Indian corporate sector is one of the highest in the world and a reduction would go a long way in creating a more investment-friendly environment.
Second, it is critical to step up public investment, which acts as an enabler for the private sector — not only in roads, railways and waterways but also in housing and agri-infrastructure. Private sector investment should be brought in to sectors and projects where the players are likely to earn returns. They should be encouraged to invest in projects only after securing key sovereign clearances. This would likely reduce the capital which gets locked up in projects stalled awaiting clearance. Implementing Kelkar Committee recommendations for stimulating the PPP model in upcoming projects and freeing up capital locked in arbitration swiftly by ensuring contractual sanctity and effective dispute resolution mechanism would help improve the investment climate.
Another crucial aspect hampering private investment is land availability. Several projects face hurdles and delays due to non-availability of land for initiating planned investment. The CII has recommended a ‘Land Bank Corporation’ to act as a definitive repository of central land holdings, which will be publicly available, with all relevant details of each land parcel, including strategic and sovereign clearances. Numerous such land parcels owned by public entities like Railways, Defence, Airport Authority etc. exist in urban and semi-urban areas which are often underutilised.
Resolution of stressed assets of the power sector is another area crucial for the overall investment situation in the economy. There is a large amount of thermal power capacity that is stranded due to increased pressure from State-level distribution companies for renegotiation of longer term Power purchase Agreements. CII has recommended setting up a ‘National Power Distribution Company’ which would buy power from the stranded assets for distribution across States. It can address strategic concerns around diversification of power besides acting as a market maker and building a national pricing point for power.
In railways, a major procurement policy for new generation freight wagons from the private sector could be a boon. It will free up public resources for maintenance of railway infrastructure besides reviving wagon manufacturers and boosting the flagship‘Make In India’ programme. All these would encourage a revival in the investment climate.