In this context, the next budget should focus on two policy objectives: dramatically improve the ease-of-doing business for private businesses and ramp up exports or, more broadly, foreign exchange earnings, such that a double-digit annual growth rate can be sustained for the next two decades.

These are surely the two most critical policy goals for the country today. The success of these two objectives will be critical in both ramping up the overall economic growth and, perhaps, most importantly, generating larger volumes of employment. It is time to consider a sharper policy focus and ensure its effective implementation, rather than dispersing policy attention on a very broad range of goals that are well beyond the extant governance capacity. 

Startup Challenge

The ground reality across the country is that despite the Prime Minister’s avowed commitment and clear directions, private entrepreneurs continue to face substantial hurdles in starting, running, and growing their businesses. This is most evident in the rather anaemic growth in private investment over the last five years.

The post-Covid recovery in the private sector has been patchy, essentially 'K'-shaped, and very weak for the smaller companies. There are several reasons for this weakness in private investment.

However, the continued regulatory and compliance pressure applied by an overzealous bureaucracy on the small and medium enterprises has emerged as the principal reason for the visible diffidence on the part of private investors to ramp up capacity expansion and push up the level of private investment to new heights. 

The number of regulatory compliance has virtually remained unchanged despite the Prime Minister’s exhortations. The budget should announce a time-bound plan for rationalising and minimising these compliances.

GST Regime

Some of these regulations and hurdles are squarely in the Central government’s realm, and the budget should announce an immediate redressal of these pain points. For example, there is no reason in the digital age for GST refunds to be paid back to the company once a quarter, rather than every month. These credits generally arise because the GST rate on inputs and components used in manufacturing is higher than on the output produced by the company. The number of such instances should, anyway, be minimised, if not eliminated. It is anomalous and against the actual intent of a well-functioning GST regime. 

Another anomaly in the GST regime is that GST charged on machinery and capital goods can’t be set off against the GST paid on the output produced by these machines. The reason for this change brought in recently is not entirely clear. The budget will do well to clarify this. 

Quality Control Orders

Quality control orders (QCO) were intended to be a disguised non-tariff barrier, but have, in effect, become major constraints on manufacturing. Any imports of components require a physical inspection of the component-exporting firm by BIS inspectors. Only when the inspector is satisfied with the quality and standard of the exporting firm’s process and products can these components be imported by the Indian company. In a competitive market, the quality and standard of the final product are evaluated very quickly by the consumers.

Is it really necessary for the government to extend its consumer protection coverage to the extent that it makes actual production hostage to an inspector’s report?

The component-importing firms have their reputation to protect and should be expected to ensure the quality of their imported inputs. The government can surely tighten and more effectively enforce consumer protection laws so that the firms that do not comply are apprehended quickly and punished in an exemplary fashion. But to have all imported components imported by all Indian firms exposed to quality control orders, to be enforced after physical inspections, is just a sure recipe for demotivating even the most committed investor. The budget would do well to announce a complete rollback of the QCOs, except for a handful used in defence and strategic products.

Council On Regulation And Compliance

Many, perhaps the large majority of regulatory controls and compliance, are in the State governments’ jurisdictions. These have to be tackled sooner than even those falling under the Central government’s remit. The budget should announce the setting up of a Council on Regulation and Compliance, with an explicit mandate for minimising the regulatory and compliance burden within a time-bound period.

The Council should be chaired by a senior business leader and include the relevant Central government and State governments’ representatives. The recommendations of the Council, which, like the GST Council, will remain in place for the foreseeable future to ensure oversight and implementation, will be binding on the governments. The Council should be empowered to even question the agencies when their actions are seen as being inimical to private business, especially in the medium and small categories. 

Only a very few of any country has succeeded in finding their way out of the low-income status, breaking free of the middle-income trap and reaching high-income status without having to depend upon external demand or exports. India cannot possibly be the exception. The global conditions are not propitious for expanding India's exports. But that cannot imply that India can ignore the importance of external demand. It only makes the task more challenging and the required policy response more complex. 

Export Promotion Policy

To begin with, it should be recognised that a pan-India export promotion policy is simply a non-starter and dysfunctional. An export promotion strategy, which is designed for Tamil Nadu, can hardly have any relevance for a double-landlocked State like the Punjab. The two need completely separate approaches to make exports happen and grow at double-digit rates.

Therefore, the Ministry of Commerce should be allocated sufficient resources from the budget to help States design their own detailed export promotion policies within the year. If possible, a rider could be put in place that the States' export promotion policies will be designed with indigenous talent. Their implementation will also be entrusted to those entities that design the strategy. 

Secondly, the budget could include clear rules for the performance evaluation of all the existing 36 export promotion councils (EPC). These evaluations should be completed within six months, their reports made public, and the post-evaluation set of measures announced in the next budget. EPCs that are retained, and these should be less than a third of the current number, should be handed measurable key performance indicators.

Annual budgets would, henceforth, be driven only, and only, based on achieving the KPIs. 

Thirdly, the budget should require that all our embassies be given clear targets for increasing India’s exports to these countries. Some countries, like Australia, have now merged their Ministries of External Affairs and Commerce. India should seriously consider this. The political role of our embassies will become meaningful only after India becomes a major player in global trade. The focus of our foreign policy is far more critical on strengthening our domestic economy and expanding exports. Therefore, let’s act on that basis and hand out measurable performance criteria to all our foreign outposts. These could include targets for increasing the number of tourists from these countries to India. With a mere ten million foreign tourists coming annually into India, there is vast support for ramping up these numbers. Additional foreign tourists generate foreign exchange earnings and generate in situ employment. 

PLI Scheme

The PLI scheme was surely meant for expanding manufacturing exports. Direct fiscal transfers were promised to companies that met their pre-announced targets. Now that the WTO is pretty much toothless and mercantilism is the order of the day, we don’t need to be coy about the objectives of the PLI scheme. The number of sectors covered by it has expanded to 14, a bit too many, thereby stretching our governance, monitoring, and, more importantly, hand-holding capacity too thin.

The budget should announce a formal review of the PLI scheme with three goals in mind. Firstly, to identify the companies that have announced and not met their targets. They should be dealt with in an exemplary manner. Secondly, to identify sectors where there are not enough interested companies and withdraw these sectors from the PLI coverage. Thirdly, to identify the companies that have met and exceeded their targets and ramp up the fiscal reward to recognise their effort and encourage them to push forward with greater vigour. 

The budget should be an instrument for spelling out the government’s priorities. That will set the tone and pace for the rest of the government. I would like to assert that at this stage of India’s economic development, there can be no higher priorities for India than to trigger higher private sector investment, increase business confidence, and at least triple India’s share in global trade flows. The share of merchandise exports has been stuck at less than 2% of world exports for decades. It is time to try to achieve a non-incremental breakthrough. This is critically needed to achieve higher economic growth and also to generate jobs. The budget should be seen as and expected to be a major statement of policy reform focusing on the highest priorities for the country.

(The writer is an eminent economist and Chairman, Pahlé India Foundation. He has served as Vice-Chairman, NITI Aayog. Views are personal.)