Any new tax like wealth tax or others at this point could do more harm than good, SBI Research has cautioned ahead of the Union Budget to be tabled in the Parliament on February 1.
If the disinvestment of LIC passes through in FY22, the government might be ending the fiscal with a large cash balance of Rs 3 lakh crore. This can come handy in supporting a large part of the government fiscal deficit without taking recourse to market borrowings, the report said.
"We caution that any new tax like wealth tax or others at this point could do more harm than benefit," it said.
Regarding sector-specific suggestions, SBI Research said 6.33 crore MSME units in India contribute 29 per cent to India's GDP, employing over 11 crore workers. Credible source to verify cashflow and seamless access for banks to GST 4 /ITR on real-time basis should be allowed for lending to SMEs, it said.
Separately, availability of real time information on a single window by the government through a regulatory architecture from various sources viz. income tax, Ministry of Corporate Affairs (Registrar of Companies), Customs, land records, SEBI, credit information companies, banks and courts (for legal cases if any) for a company/borrower, will significantly enable informed credit decision in the future for all borrowers.
The Covid-19 pandemic has created a renewed interest in the MSME space with a behavioural shift in bank lending to such units, surpassing all expectations on the back of the ECLG scheme launched by the government.
The Emergency Credit Line Guarantee (ECLG) scheme must be extended with necessary policy tweaks till FY23. This will also enable completion of the entire targeted Rs 4.5 lakh crore of credit flow under this scheme, SBi Research said.
Additionally, given the little success of the federal guarantee scheme of CGTMSE in anchoring SMEs in its two decades odd existence, the Budget should explore reorienting the institution along the lines of US-SBA as a facilitator towards starting and expanding business by SMEs.
Such an agency should be singularly entrusted with a complete end-to-end digital platform with primary focus on cash flow-based lending by financial intermediaries.
SBI Research has suggested that renewal of Kisan Credit Card (KCC) loans of small and marginal farmers and for loans of other categories of farmers for amounts up to Rs 3 lakh, the payment of interest should be an enough condition for renewal.
Additionally, the interest subvention benefit which at present accrues only for crop cultivation and working capital loans for allied agricultural activities can be extended to cover term loans for investment credit purposes availed by small and marginal farmers without increasing the overall loan limit.
This will spur investment credit for minor purposes on the field, including drip irrigation, scientific mulching, land development for rainwater harvesting, water pumps, water shed management etc. at the individual farm level.
The above measure has the potential to also reduce credit cost for banks considerably on KCCs as NPAs can be prevented more easily, and if the above suggestion is agreed upon by the RBI, interest rate on KCC loans can be further reduced.
As on March 31, 2021, the data suggest that KCC loans for ASCBs aggregated to about Rs 7.53 lakh crore through 7.3 crore active KCC card users, which constitute about 55 per cent of the total agricultural loans outstanding by all the banks.
It is intriguing that access to KCC loans is renewed every year only after the farmer has paid both the principal and interest amount in totality.
SBI Research has suggested to rationalise the existing taxation structure on contractual savings to promote savings. Under 80TTB, interest income from deposits by senior citizen (savings bank accounts, fixed deposits, recurring deposit accounts) up to Rs 50,000 is exempted from income tax. This threshold may be increased to Rs 1,00,000, which will have fiscal cost of only Rs 2,000 crore (around 7 bps FD).
It has also suggested a medical savings account wherein a part of the advance tax goes to Mediclaim policy -- thus enabling customers to take advantage of EMIS.
A scheme to deduct interest from savings account and pay towards Mediclaim policy can be thought of.
The total number of savings bank accounts in India is 130 crore (excluding the Jan Dhan accounts which are possibly covered under Ayushman Bharat). If we take the average balance in such amount (Rs 1,215) as the insurance amount, the account holder can get up to Rs 50,000 as annual insurance cover that can be even tweaked to include medical expenses, SBI Research said.
The government should consider exempting health insurance products from GST, at least for all retail and health focused products. At a time when governments are grappling with pandemic scenarios, they can look at making health insurance more affordable, it said.
The hare of retail sector in exports is very small, less than 5 per cent. SBI Research has suggested that special export promotion scheme covering end-to-end solution should be formulated. The retail trade policy must reward retail trade models that encourage 'Make in India' and 'Vocal for Local'.
The policy must create incentives for domestic platforms to emerge and reduce the share of foreign-funded platforms.
The government may consider legal measures to separate data aspect of the platform/retail business from sales to reduce the misuse of user data and prevent sellers for gaining dominant position in the supply chain.
On exports, SBI Research has suggested an automatic coverage of all exports under guarantee scheme and a dedicated portal for capturing international market opportunities/business leads for export of goods and services from India.
On real estate, it said the SWAMIH (Special Window for Funding Stalled Affordable and Middle Income Housing Project) scheme could be extended to all stalled residential projects without monetary cap.
The condition of net-worth positive projects should be continued. Residential real estate GST may be removed, which is currently at 5 per cent, as this will encourage buyers. Growth in this sector has multiplier effect on the Indian economy, it added.
For manufacturing, it called for extending PLI scheme to the labour-intensive sectors, interest subvention on loans for new manufacturing units, incentives for MSME units, which bring down their cash transactions to say less than 10 per cent.
Mergers and acquisitions have become the order of the day and they are a necessity for consolidation of industries. This is seen as great opportunity for the banks to fund both equity/debt part of such corporate restructuring, hence regulatory guidelines may be modified favourably.
SBI Research suggested that resolution of stressed assets through NCLT should conclude maximum within 270 days, which should also include appellate and any court intervention so as to restrict depletion of assets and eventually the haircut suffered by the banks.
It also suggested a law to ensure time-bound debt recovery in non-NCLT cases, say maximum of six months.
Clarity in laws to ensure timebound enforcement of contracts/agreements. Bad loans pursued only against the defaulters from recovery point of view, and fixed timelines for action by law enforcement agencies with recovery-based incentives, it further suggested.
(Sanjeev Sharma can be reached at Sanjeev.firstname.lastname@example.org)
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