With the Union Budget 2021-22 just around the corner, there is room for optimism. Going by market reports, green shoots may already be sprouting, indicating an economic turnaround is taking place. In fact, in its December ‘State of the Economy’ report, the Reserve Bank of India (RBI) has revealed that the nation is emerging from the economic slump much faster than anticipated.
Meanwhile, the Centre is aware that the Budget needs to provide a robust push to ensure that the turnaround momentum is sustained. Finance Minister Nirmala Sitharaman has already given strong indications that the upcoming Budget will surpass any other presented during the past century.
Leveraging opportunities
To ensure a complete recovery from the pandemic, the Centre should continue its efforts to boost domestic production for making Atmanirbhar Bharat a ground reality through the requisite incentives and policy measures. Sitharaman’s all-important Budget should focus on providing greater momentum to the recovery process.
To begin with, the government needs to increase its spending on infrastructure and other core sectors in driving a sustained growth momentum across India. The proper mix of progressive policies and select incentives are imperative to attract more Foreign Direct Investment (FDI) in mining, which can pave the way for adopting modern exploration technologies fostering sustainable practices.
In the meantime, just as in the case of coal, more metals and minerals must be opened for exploration. The government should also ensure that restrictions on the pricing and marketing of minerals are lifted across all states, including the e-auction regime in Karnataka for iron ore. Besides boosting exports, this will provide parity across states, giving the economy a fillip.
Opening up mining and incentives for the manufacturing sector will also benefit MSMEs. Contributing 30 percent to the Indian gross domestic product (GDP), the Micro Small and Medium Enterprises (MSMEs) have been described as the backbone of the country by Union Minister for Road Transport and Highways Nitin Gadkari. Furthermore, MSMEs have also created 110 million jobs.
Reforms in core sectors
Given these facts, mining and manufacturing must be supported for ensuring a sustained turnaround in the economy. No doubt, till date the Centre has initiated many measures in supporting industries allied with natural resources, which includes mining and oil. Nevertheless, the deep disruptions caused by the COVID-19 pandemic mean more policy reforms remain the need of the hour for fast-tracking economic recovery.
For example, policy reforms are essential to conduct speedier auctions and ensure environmental approvals are granted in a time-bound, transparent manner. Additionally, the mining industry should be branded along similar lines as that of manufacturing under the Atmanirbhar Bharat mission. Mining being a capital-intensive sector, vibrant branding backed by tax stability as well as predictability of returns will help in attracting domestic investments and FDI.
Moreover, taxes without any input credit must be avoided and retrospective tax issues, as well as disputes under the previous tax regime, need to be resolved on a war footing according to merit. Another important policy reform lies in lowering the tax rate to a flat 15 percent for investments in oil, mining and manufacturing. Such a measure will ascertain there are adequate investments, including FDI, both in mining as well as oil and gas exploration. This will augment domestic supplies while saving foreign exchange.
Presently, the nation imports almost 85 percent of its crude oil despite having 75 million-plus barrels of oil. This is the equivalent of in-place resources sufficient for meeting India’s needs for 25 to 30 years. Steps such as the lowering of cess from a steep 20 percent to around 6–8 percent on domestic crude oil, the timely extension of contracts, on the same terms, and a global fair price for crude would benefit all stakeholders while increasing investor confidence too.
Therefore, Union Budget 2021 should announce financial allocations and incentives for attracting greater national and global investments in mining and hydrocarbon exploration. MSMEs in ancillary sectors will also benefit from this, expanding GDP growth as around 60 million units in this segment contribute to 45 percent of India’s industrial production and 40 percent of the total exports.
The Budget must also announce an enabling policy framework focussing on production rather than revenue. In the days ahead, higher production will automatically generate greater revenues. Finally, one expects the Budget to rationalise the tax regime for mining, including crude oil. While offering the sector much-needed relief, it will also help in advancing a quicker economic bounce back.
The writer is Group CEO and Chief Safety Officer, Vedanta Ltd
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