Third term budgets are a tall order. There is an overwhelming expectation to be bold by bringing in long-pending reforms of labour, easing regulatory compliances, smaller governments, and so on. Especially, when the government in power has had a long run of a decade.
Governments with comfortable political majorities are usually best-placed to bring in reforms that could possibly press the reset button for the economy. After being in government with an absolute majority for a decade, the BJP was voted back to power in May 2024 with the help of alliance partners.
Now, with big wins in Maharashtra and Haryana soon after the 2024 General Election, PM Modi is now perceived to be on a stronger wicket, politically. Modi has received the adulation of billionaires and masses alike – a rare double engine feat.
The latest Moneycontrol-Deloitte Survey of 45 CEOs across industries such as Consumer Goods, Financial Services, Software and others has found optimism for the India story intact among them. Over 55% of the CEOs are optimistic about India growing between 6.5-7% in FY26. In a world straddling between 1 and 4% growth rate, India’s 6.5-7% GDP stands out as an outlier.
However, the optimism comes with a strong message for the government – an overwhelming 91% of the CEOs polled have asked for simpler tax regimes and compliances for ease of doing business.
PM Modi, as Chief Minister of Gujarat, has in the past been credited with turning the state around by unleashing the potential of private enterprise.
Modi has so far shunned Rewris, or freebies, and had promised cutting out the regulatory cholesterol when he was voted as the Prime Minister in 2014. ‘Minimum government and maximum governance’ was a slogan that had inspired hope to replace red tape with a red carpet.
The Goods and Services Tax regime brought in 2017 was pitched as one of the biggest tax reforms in India’s economic history, with the promise of streamlining and rationalizing of rates.
Nearly eight years on, the reform remains a work in progress and the tax is mired in multiplicity of rates and a maze of compliances. Some of the oddities in GST regime include rates of shampoos and detergents being classified as luxury items, thus attracting 28% GST, while gold and diamonds falling under a special tax bracket of 0.25-3%. Stationary, toothpaste, soaps too fall under the 18% tax slab.
GST has come under criticism for increasing the compliance burden and with a slew of notices from the tax department across industries on GST evasion, it has also been slammed for unleashing so-called ‘tax terrorism’.
Thousands of notices had been sent to small businesses and MNCs in 2024. The gaming industry, to consider one example, received notices demanding Rs 1.5 lakh crore in pending taxes. Around 33,000 GST notices were issued in 2024 for return discrepancies and shortfall in tax payments in FY 18-19.
About 60 per cent of the CEOs polled have asked for an online, single-window clearance, followed by an easier compliance process for trade and investment across borders. An analysis by Teamlease Services showed that there are close to 70,000 compliances at an aggregate level that businesses have to comply with. Two of every five compliances carry a jail term for violations.
The regulatory cholesterol has incentivized businesses to stay small. India has improved its Ease of Doing Business ranking, and today is the third-most improving country when it comes to business environment – driven by the FDI policy, foreign trade, exchange controls and the tax regime – according to the Economist Intelligence Unit’s 2024 rankings. The research and analysis division of the group noted that it expects the most significant policy improvement – infrastructure investment or growth in market opportunities – from India, along with Greece and Argentina. Clearly, a start has been made, but now is the time to accelerate the process.
Faster disposal of commercial disputes and improved land and labour laws are some of the other priority areas outlined by the CEOs in the Moneycontrol-Deloitte Survey, conducted between January 10-22, 2025.
This Union Budget presents the Modi government with an opportunity to revisit India’s historic 1991 moment. If 1991 was about opening the economy to the world, its evident that the time now is to enable the movers of the economy to fire all engines. Regulatory cholesterol is not entirely in the domain of the Centre, and states too have a major role to play in carrying out grassroot reforms. The Budget can set the tone and tenor for the states, and can come out decisively against the rise of tax terrorism.
The wild card for a growth-focused economy really lies in simple details. Let us hope that the government is listening.
