Strong Push for Ease of Doing Business, But Vision-Execution Gap Remains

In Budget 2024, Finance Minister, Nirmala Sitharaman, stressed upon “Gareeb, mahilayein, yuva, annadata (poor, women, youth and farmer)” as the principal beneficiaries. However, major announcements towards making India more business-friendly have put the spotlight on Ease of Doing Business (EoDB) as a core theme as well.

Easing regulatory frameworks, simplifying taxes and reducing customs duty in certain sectors were part of significant moves towards EoDB. Indirect impact will also come from the Government’s capex-led approach, and supply side interventions.

Taxation and Exemptions

The biggest change has been the elimination of angel tax - a thorn in the side of start-ups and venture capitalists for over a decade. Besides improving domestic and international funding for startups, this move is likely to promote innovation and competition. Reduction in corporate tax from 40 – 35% will be a boost for foreign companies. Increasing the inflow of foreign investments has been high on the Government’s agenda, as seen in the Economic Survey as well. Similarly, e-commerce operations are expected to be simplified and see accelerated growth with the TDS rates being reduced from 1 per cent to 0.1 per cent.

The reduction of Basic Customs Duty (BCD) for a couple, and exemption for 25 critical minerals, could lower production costs of EVs and impact a multitude of sectors, including electronics and telecommunications.

Direct Regulatory and Compliance Interventions

Tackling EoDB concerns directly, the FM announced measures that are likely to show a direct short and long-term impact. For instance, States will be incentivized to implement Business Reforms Action Plans, while the Jan Vishwas Bill 2.0 is expected to further smoothen out the legal processes around business operations.

Procedural compliance changes have been introduced to streamline the insolvency process, with amendments to the Insolvency and Bankruptcy Code (IBC). The Government will also set up an integrated technology platform to facilitate debt resolution of distressed companies.

Decriminalization of 63 offences around compliance is significant as well and will boost confidence amongst businesses. Minor contraventions under the Companies Act, 2013 and Competition Act, 2002, have often led to long drawn-out legal proceedings against businesses, attracting disproportionately harsh penalties. Similarly, additional Tribunals to be established under the National Company Law Tribunals could further reduce timelines for dispute resolution.

Auxiliary Impact of Capex Outlay

India’s real GDP growth rate crossing the 8 per cent mark has reposed the Government’s faith in its capex led approach. The Union Budget 2024-25 has earmarked Rs. 11.11 lakh crore for just infrastructure development, which is around 3.4% of the GDP. In line with expectations, this has remained the same since the interim budget earlier this year. However, the Government has made an effort to infuse more capital in infrastructure development, especially through public-private partnerships.

With increased spending on city revamping, transit-oriented development of 14 large cities, the coming years could witness improved efficiency in logistics and supply, while attracting greater investments for manufacturing and industries. Development projects to revamp 100 cities will also find a more methodical urbanization of industrial pockets - raising the quality of life, thereby attracting greater foreign investments and workforce. Urban livability is a critical factor in the ease of doing business and the Government’s planned approach could make the ecosystem more resilient.

Supply Side Initiatives

Proposed supply-side initiatives - policies aimed at increasing the economy's production capacity and efficiency - will also have an impact on EoDB. For instance, the allocation of Rs. 2 lakh crore for job and skill development schemes can address the labour supply gap, while a reduction in the BCD on mobile phone, mobile PCBA and mobile charger to 15 per cent can increase digital expansion and improve consumer participation in the digital economy. Dedicated schemes for MSMEs - continued credit access, Mudra loans limit revision from Rs. 10 lakh to Rs 20 lakh, digitalization and international market opportunities for small businesses through e-commerce hubs - will create a more competitive and resilient market.

Execution and AI Investment Gap Concerns Remain

Even as the budget succeeds in directly and indirectly improving EoDB, there are still questions on the execution of this vision. For instance, industry calls with regards to GST 2.0 - simplifying filing processes, reducing compliance for small businesses, adopting faceless assessments, implementing a compliance rating system - remain unanswered. Again, AI deployment in pockets may leave room for regulatory complexities and underutilization of the AI wave. A dedicated budget for AI research & development, but not for AI-specific infrastructure development can lead to implementation gaps. In 2022, India received 122 AI-related FDI projects, making it the top preference for foreign investments in this sector. With the Economic Survey acknowledging the need for careful navigation in this space, the budget could have echoed similar sentiments.

Overall, the budget is a step in the right direction in boosting market confidence, but there is a long road ahead to build the necessary institutional capacity. The next few years will be a crucial litmus test for the government to achieve its aim of Viksit Bharat, and position India as a leader in the global supply chain.