New Delhi: Any new taxes like wealth tax or others at this stage could do more harm than good, SBI Research has warned ahead of the Union Budget tabled in Parliament on February 1.
If the LIC divestment materializes in FY22, the government could end the FY with a large cash balance of Rs 3 lakh crore. This can be useful in supporting much of the government’s budget deficit without resorting to market borrowing, the report said.
“We warn that any new taxes like the wealth tax or others at this stage could do more harm than good,” he said.
Regarding sectoral suggestions, SBI Research said that 6.33 million MSME units in India contribute 29% to India’s GDP, employing over 11 million workers. A credible source to verify cash flow and transparent access for banks to real-time GST 4/ITR should be allowed for SME lending, he said.
Separately, availability of real-time one-stop-shop information by government through regulatory architecture from various sources viz. Income Tax, Department of Corporate Affairs (Company Registry), Customs, Land Records, SEBI, Credit Reporting Companies, Banks and Courts (for legal matters where applicable) ) for a business/borrower, will significantly enable an informed credit decision in the future for all borrowers.
The Covid-19 pandemic has sparked renewed interest in the MSME space with a change in behavior in bank lending to these units, exceeding all expectations thanks to the ECLG program launched by the government.
The Emergency Line of Credit Guarantee (ECLG) scheme is to be extended with necessary policy adjustments until FY23. This will also complete the entire targeted credit flow of Rs 4.5 lakh crore under this program, said SBi Research.
Moreover, given the limited success of the federal guarantee scheme of the CGTMSE in anchoring SMEs during its two decades of existence, the budget should consider reorienting the institution on the model of the US-SBA by as a facilitator in the start-up and expansion of SME activities.
Such an agency should be singularly tasked with a comprehensive end-to-end digital platform, primarily focused on cash flow-based lending through financial intermediaries.
SBI Research has suggested that the renewal of Kisan Credit Card (KCC) loans of smallholders and marginal farmers and for loans of other categories of farmers for amounts up to Rs 3 lakh, payment of interest should be a sufficient condition for renewal.
In addition, the interest subsidy benefit that currently only applies to crop and working capital loans for agricultural related activities can be extended to cover term loans for credit purposes. investment that benefits small and marginal farmers without increasing the overall loan limit.
This will boost investment credit for minor field purposes including drip irrigation, scientific mulching, land development for rainwater harvesting, water pumps, management watersheds, etc. at the level of each farm.
The above measure has the potential to also significantly reduce the cost of credit for banks on KCCs, as NPAs can be avoided more easily, and if the above suggestion is accepted by the RBI, the interest rate on KCC loans can be further reduced.
As of March 31, 2021, data suggests that KCC loans for ASCBs amounted to around Rs 7.53 lakh crore via 7.3 crore active KCC card users, accounting for around 55% of total agricultural loans outstanding by all banks.
It is curious that access to KCC loans is only renewed each year after the farmer has paid the full amount of principal and interest.
SBI Research proposed to rationalize the existing taxation on contractual savings to promote savings. Under 80TTB, interest income from elderly deposits (savings bank accounts, fixed deposits, recurring deposit accounts) up to Rs 50,000 is exempt from income tax. This threshold can be increased to Rs 1,00,000, which will have a fiscal cost of only Rs 2,000 crore (about 7 bps FD).
He also suggested a medical savings account in which part of the withholding tax goes to the Mediclaim policy – allowing customers to take advantage of EMIS.
A system for deducting interest from the savings account and paying for the Mediclaim policy can be considered.
The total number of savings bank accounts in India is 130 crore (excluding Jan Dhan accounts which are possibly covered by Ayushman Bharat). If we take the average balance of such amount (1,215 rupees) as insurance amount, the account holder can get up to 50,000 rupees as annual insurance cover which can even be modified to include medical expenses , said SBI Research.
The government should consider exempting health insurance products from the GST, at least for all retail and health-oriented products. At a time when governments are grappling with pandemic scenarios, they may consider making health insurance more affordable, he said.
The share of retail trade in exports is very low, less than 5%. SBI Research suggested that a special export promotion program covering an end-to-end solution be formulated. Retail policy should reward retail business models that promote ‘Make in India’ and ‘Vocal for Local’.
The policy must create incentives for the emergence of national platforms and reduce the share of foreign-funded platforms.
The government may consider legal measures to separate the data aspect of the platform/retail activity from sales to reduce the misuse of user data and prevent sellers from acquiring a dominant position in the supply chain.
Regarding exports, SBI Research suggested automatic coverage of all exports under guarantee scheme and a dedicated portal to seize international market opportunities/trade leads for export of goods and services from India .
On real estate, he said the Special Window for Funding Stalled Affordable and Middle Income Housing Project (SWAMIH) program could be extended to all stalled residential projects with no monetary cap.
The condition of positive net worth projects should be maintained. The GST on residential real estate could be removed, which is currently 5%, as this will encourage buyers. Growth in this sector has a multiplier effect on the Indian economy, he added.
For the manufacturing sector, he called for extending the PLI scheme to labor-intensive sectors, subsidizing loan interest for new manufacturing units, incentivizing MSME units, which reduce their transactions in cash at less than 10%.
Mergers and acquisitions have become the order of the day and they are a necessity for the consolidation of industries. This is seen as an excellent opportunity for banks to fund both the equity/debt portion of such corporate restructuring, so regulatory guidelines can be changed favorably.
SBI Research has suggested that the resolution of assets stressed by NCLT should be concluded within 270 days at most, which should also include appeal and any legal intervention to limit the depletion of assets and possibly the downgrade suffered by the banks. .
He also suggested legislation to ensure timely debt collection in non-NCLT cases, say a maximum of six months.
He further suggested that laws be clear to ensure timely execution of contracts/agreements.
