Exploring ideas to help better fund the government and INDIA’s growth going forward

Mr Sanjeev Kumar | May 02,2014 11:24 am IST

Based on the available historical Macro- economic data, it is quite evident that various INDIAN governments at the centre as well as at states level have struggled with fiscal deficit..

The fiscal indicators table below ( sourced from RBI and Ministry of Finance ) calculated in percentage of GDP terms starting with FY 01/02 to a projected deficit for the FY 13/14 more or less illustrates the issue.
 

And even during high during growth period, the fiscal deficit has remained around and over 2.5% as evident from the real GDP growth rate table below ( sourced from RBI and the ministry of finance ).
 

 

 

So in the short, the country clearly needs to find a sustainable funding structure.


And with this in mind, here is an outline covering some of the important ITEMS.

 

Infrastructure:
Create four (4) zonal / regional infrastructure development and guarantee TRUST, and divided them into North, South, East and WEST.
 

Funding of these four infrastructure development and guarantee TRUST under a public private partnership initiative
- percentage of the annual budget of individual state governments coming in the zone/region.
- percentage of the Central/ Federal Government Budget annual budget.
- 0.5% of large companies annual profit under an “Indian Infrastructure development INITIATIVE”
- sell 10, 20, and 30 years bonds to institutional investors local as well as overseas.
- raise additional equity from overseas as well as local institutional investors and also list in the public market.
 

Encourage rating agencies to create a credit rating platform dedicated to Infrastructure ONLY.
 

Scope of the Infrastructure development and guarantee TRUST:
- ON PROJECT BY PROJECT BASIS: act as a partial or comprehensive debt guarantor of the project, take equity position in the project among others.
 

Social Safety Net FUND INITIATIVE:
These social safety net fund will be created locally, and the funding of the social safety net fund could come from..
- 10 % of all religious donation made in the state under “contributing to the society initiative “.
- 0.15% from personal tax.
- 0.25% from SMEs.
- percentage of the state budget.
- private as well as corporate donation.
 

Scope of the Safety net FUND:
provide micro credit on subsidised rates to citizens, help underwrite some of the healthcare related cost of the citizens with no income, partially fund skill development programs, provide assistance in job search, help share the funeral cost with the local municipalities for citizens with no income among others.
 

Additional Fund Raising Program:
Work with religious organisation and convince them to deposit the GOLD and jewellery donations held by trustees of various temples at a special counter under the control of RBI. Set up a investment management under RBI that will manage the GOLD deposit under the followings terms;
- the trustees will remain the owners of the GOLD.
- RBI’s special will charge the TRUSTEES a fee to manage their GOLD deposit.
- 90% of the return generated minus fees will go to the Trustee.
- the remaining 9% will go to INDIA infrastructure development and guarantee TRUST, and 1% to University Grant Commission of India to develop rural education across INDIA.
 

SUBSIDIES and PRIVATISATION
- ideally remove the subsidies right away but considering the political backlash create a 5 year subsidies removal plan cutting 20% from existing subsidies each year.
- privatise non strategic companies that is currently being owned by the government.
 

NON RESIDENT INDIAN CERTIFICATE OF DEPOSITs
Tax Free Certificate of Deposits structured with an in built FEE of not more than 0.18% of the overall return earned by the depositor over the life of deposit. This will be automatically deducted.
 

PROPERTY TAX
- no tax on properties below INR 250,000.
- a flat 0.10% property TAX on properties above INR 300,000.
- a flat 0.15% property TAX on properties above INR 1 million.
- a flat 0.20% property TAX on properties above INR 10 million.
 

Part of the proceeds of the property TAX to go to local municipalities, University Grant Commission of INDIA to set up satellite RURAL education centres, partially government funded health care clinics for primary clinics among others.
 

ROAD TAX
A fixed annual road tax to partially maintain state as well as national toll free roads and highways.
 

TAX
Personal Income Tax
- no income tax for people earning below INR 7,500 per month.
- 8 % flat tax on people earning up to INR 25,000 per month ( plus 0.15% will go towards Social Security net FUND as outlined above ).
- 10% flat tax on people earning up to INR 45,000 per month ( plus 0.15% will go towards Social Security net FUND as outlined above ).
- 15% flat tax on people earning up to INR 100,000 per month (plus 0.15% will go towards Social Security net FUND as outlined above ).
- 18% flat tax on people earning above INR 120,000 per month (plus 0.15% will go towards Social Security net FUND as outlined above ).
 

Corporate Tax
- no income tax on companies earning up to INR 150,000.
- 9% flat tax for SMEs.
- 18% flat tax for large corporates.
 

VAT
- a flat 15% tax regime covering most consumer products LINK financial institution with a platform to check tax status of a company or an individual before granting them a loan, this is to avoid defaulters getting access to credit and in the process encourage tax contribution.
 

Special Remarks: Carry out radical structural reform to make the economy more efficient and responsive. Encourage medium and long term foreign direct investment into the country.
 

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A market-seasoned professional and the recipient of the “Southeast Asia Young Achiever’s Award,” Mr. Kumar oversees business activities in more than 30 countries in his role as the member of the board of directors’ of Delamore and Owl Group. Since 1956, the Delamore and Owl Group is a privately held group of ...