News & Analysis

Budget Push for #Pyramids2Circles Shift

What began as a make-in-India initiative some years ago is now metamorphosing into an inclusive growth model with decentralization as its focus

The narrative around decentralizing economic growth has been gaining ground for a few years in India. The government itself has been pushing local entrepreneurship as a means of driving economic growth and creating jobs. Now, there is something more tangible that has come up in the form of tax incentives for cooperatives, which represent collective ownership and growth. 

In her federal budget, finance minister Nirmala Sitharaman came up with a slew of tax benefits for cooperatives and their investments in technology and infrastructure development. Interestingly, these announcements come barely weeks after the Union Cabinet had relaxed the rules for their increased participation in India’s economic growth story. 

Cooperatives are the way forward 

In her budget speech, Sitharaman said new cooperatives that start manufacturing by March 2024 would be only taxed at a flat 15% rate as against the current rate of 30% plus surcharge. Sugar cooperatives can now claim farmer payouts for cane as part of their expenses and claim refunds for the timeframe prior to the 2016-17 assessment year. 

Additionally, the budget also proposed to cap the limit at Rs.2 lakh per member for cash deposits and loans in cash by primary agricultural cooperatives and primary cooperative agriculture and rural development banks. The Cooperatives Societies were also provided with a higher limit of Rs.3 crore for TDS on cash withdrawals as against Rs.1 crore now. 

Besides initiating a computerization drive for these societies and setting up a national cooperative database, the government has also framed model by-laws in order to grow them into multi-purpose financial institutions for the rural societies in general. Three weeks ago, the Union Cabinet had approved a national level multi-state cooperative organic society. 

That some of these measures come in tandem with a reduction of custom duties on a slew of inputs that go into the manufacture of goods such as mobile phones, television panels and lithium-ion batteries suggests a new line of thinking on boosting local manufacturing. 

Make-in-India and make in the villages 

The budget also simplified customs tariff regime by reducing the number of rates to 13 from 21, besides easing several compliances to make it easier to do business. Ms. Sitharaman also extended 146 customs duty exemptions by one-two years to support multiple sectors. Experts hold the view that these tax proposals align with the Make-in-India priority with the cooperative edge further realigning the focus to smaller towns and cities. 

Experts that we spoke to were clear that besides Make-in-India, the focus area was around AtmaNirbhar Bharat where small manufacturing units in the towns and villages could take up the production of several of these products. In fact, the success of the PLI scheme appears to be the one reason behind a further rationalization of these age-old tax structures. 

In fact, the Economic Survey had presented a strong case for developing India into a crucial player in the global supply chain. The survey said global commodity supply disruptions are expected to intensify over the year due to the Russia-Ukraine war, the West’s price caps on Russian oil and the re-emergence of Covid-19 in China.

Additionally, India has quietly been raising customs duty on finished products over the past few years to discourage imports. By reducing input costs as a parallel exercise, the country is now geared up towards bolstering its manufacturing industry that could potentially provide thousands or even millions of well-paying blue-collar jobs in the smaller towns. With the road infrastructure expanding by leaps and bounds, the erstwhile stress on transportation too is on its way down. 

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