FM Nirmala Sitharaman's Budget 2024 lays ground for further reforms

The Union Budget is a valuable statement of intent of the government’s commitment to growth and development. The Union Budget has immense signaling value on continuity and change on next generation reforms, and indications of far-reaching change on taxation which will have cascading impacts on structural change, investment and growth.

The Budget speech had a specific chapter on next generation reforms and signals policy and vision documents which will detail some of these. The Finance Minister announced that an Economic Policy Framework would set out the overarching approach to economic development and set the scope of next generation of reforms. The intention to initiate and incentivise reforms for improving productivity of factors of production, and facilitating markets and sectors to become more efficient and technology as an enabler of improving total factor productivity are valuable indications of the policy direction oriented at growth. In devising this framework document, it would be valuable for the ministry of finance to conduct stakeholder consultation and take into account industry feedback. Privatisation and asset monetisation to help reduce fiscal deficit as well as bring private sector energy into state-owned enterprises may perhaps be part of the economic framework document.  

On judicial processes, the Budget announced reforms to the NCLT and NCLAT. While details on this are awaited, it is a welcome announcement. We need a breakthrough idea to fix delays in the judiciary, including NCLT and NCLAT. 

We need to open our doors to the private sector and cutting-edge technology – whilst carefully preserving the core of the sovereign judicial functions. By way of example - privatisation of the passport seva kendras has worked most efficiently, with the process becoming seamless, it is a model to be replicated. Even on court processes, the world over there are several court service organisations that can be followed and consulted in order to come up with a system most suitable to our conditions.

Regulatory certainty and predictability are also important components of the rule of law, and to this end embedding practices such as stakeholder consultation, cost benefit analysis, a future ready legislative and regulatory framework for digital technology, rooted in Indian realities and priorities would equally be vital. 

Similarly, the Budget speech acknowledged that finance is the nerve centre of the economy, and to this end a financial sector vision and strategy document will be released to prepare the sector in terms of size, capacity and skills. This will set the agenda for the next 5 years and guide the work of the government, regulators, financial institutions and market participants.

While this is awaited and the details will be useful, a practitioner’s wish list would include, bank privatisation/ governance reform, new and differentiated bank licenses, a legislative framework for fintech, systems and processes to embed regulatory predictability and due process and a framework for overseas listing.

On taxation, the announcement to revamp the Income Tax Act, with the aim to simplify and provide tax certainty is a massive structural change. The speech also indicated further simplification and rationalisation of GST.  Evidence from research by IMF and OECD has shown that measures that reduce tax complexity and provide predictability are more likely to increase tax compliance rather than simply reduction of rates.  The streamlining and simplification of both direct and indirect will therefore be a win – win for the tax payers and the government and allow a boost in consumption and investment.

The abolition of Angel Tax for all classes of investors provides a fillip to the innovation ecosystem and entrepreneurs.

The Budget therefore provides a possible path for a slew of further reforms, each of which could be transformation.

The writer is Managing Partner, Cyril Amarchand Mangaldas