Turning inflows of money into productive capital formation

Livemint     22nd December 2020     Save    

Context: Corporate deleveraging in India and the scope for copious capital inflows (already evident) from around the world offer room for optimism which must be leveraged in creating productive capital assets.

Increased inflows: Recent monetary policy meetings in America and in Europe supports the already evident trends in capital inflows in the country. This is due to. -

  • Anti-china sentiments: across the world, especially in the USA, have resulted in more exports from India and investment in the country. Example: textiles sector.

Leveraging money inflows into building productive capital: following five measures can be taken to effectively exploit this opportunity.

  1. Simplify the Goods and Services Tax (GST), reduce rates, and bet on transaction volumes instead.
  2. Reforming direct taxation policy:
    • By minimizing tax slabs (which re-introduced in the last budget)
    • Simplifying angel taxation: even if it results in a few free-riders takes benefit.
  3. All states should identify bottlenecks, set up a time-bound programme to look at these afresh, and remove unwanted procedures, requirements and compliances.
  4. Modifying the new criteria for the categorization of enterprises into Micro, Small and Medium slots; Presently, an enterprise graduates to the next level when it exceeds either investment or sales turnover.
    • Micro enterprises should graduate to the next level if they cross both turnover and investment target.
    • They should be allowed to take tax-related benefits of small category for at least two years even after graduating to the next level.
  5. The government should cease being India’s biggest litigant and evolve parameters for litigation.

Conclusion: In the Indian context, for the government, ‘getting out of the way’ is still the most useful form of policy activism.