Modi’s polite message to industry: Perform now
Not many in the gathering at a global business summit on Friday must have expected the kind of plain-talking that Prime Minister Narendra Modi did in his address. His swipe at private industry, that while the hefty tax breaks they get are termed “incentives” (by implication, necessary for growth), the benefits that poorer sections of society receive are called “subsidy” (by implication, a fiscal burden to be diluted), indicated clearly not just his line of thought but also that of his Government's future course of action. Unsaid in Mr Modi's remarks was that the time had come for the private sector to be in the forefront of driving growth and employment opportunities rather than seek endless tax benefits and depend on public sector funding to propel development. The Prime Minister's comments come in the wake of repeated nudges by various Union Ministers that private industry must put its money where its mouth is, especially when the Government has initiated a series of measures to encourage it, through greater ease of doing business and the Make in India campaign. The Government's concern is understandable because it has to both honour the fiscal deficit target and trigger higher growth through public investment. Needless to say, if the Government were to greatly loosen its purse-strings in a bid to kick-start high levels of economic growth, it could end up being fiscally imprudent. Reserve of India Governor Raghuram Rajan's caution, that fiscal indiscipline should not become a casualty under various pretexts, has also to be seen in this context. Of course, there is a section of economists which holds that fiscal deficit targets are not written in stone and that, if the Government needs to boost public spending for the larger good, a higher fiscal deficit will not bring heavens down. While that debate can go on at the sidelines, the Prime Minister's message that the private sector must do more than just seek tax benefits, cannot be lost sight of. Of course, he is not being anti-industry by any stretch of imagination; at the business meet, he presented the nuanced position that, if tax breaks are incentives for the private industry, so are the controlled prices of urea and other fertilisers for the farming sector. He was also quick to emphasise that rationalisation of subsidies in various products a process that has already begun with the Direct Benefit Transfer scheme will better target the needy and plug leakages.
Mr Modi also rubbed it in by pointing out that the total revenue loss from ‘incentives' to corporate tax-payers stood at more than Rs62,000 crore and this did not include the tax exemptions on dividends and long-term capital gains, the beneficiaries of which were not the “poor”. Coming as his comments did in the run-up to the Union Budget, they offer a glimpse of the road ahead. It may be recalled that Union Minister for Finance Arun Jaitley had said in his last Budget speech that, while corporate taxes would be reduced from 30 per cent to 25 per cent over a four-year period, this would be done along with a corresponding phase-out of the various tax exemptions and deductions the industry has been receiving. The bottom line is: While incentives are needed for both corporate and farming sectors, they must result in tangible performance.