On 1st February, India’s finance minister Nirmala Sitharaman will unveil India’s budget for the FY21. Stating that due to the devastating effects of the COVID 19 on the business and human capital, high expectations from the industries and the general public are to be expected, would be an understatement.
As quite predictable, many expectations include taxpayer- friendly measures to be incorporated. Industries want tax cuts and tax breaks for the consumers to increase the demand for their commodities. As a common phenomenon, more disposable income of the consumers would mean more spending and thus will lead to more demand in the economy.
But this year one should also brace for higher taxes as the government is trying to raise the revenue for its pro spending agenda.
“if the government keeping giving tax sop or spending to stimulate the economy, it won’t be able to maintain fiscal discipline” says Raamdeo Agrawal, chairman of Motilal Oswal Financial Services.
Certainly, unnecessary tax breaks might lead to fiscal slippages and such slippages are well monitored by the Global Rating Agencies who keep a Hawk’s eye on such tumbling’s of the emerging economies like India.
Moreover, the fiscal deficit has already overshot the fiscal deficit target of Rs. 7.96 lakh crore, standing at a hefty amount of Rs. 8.7 lakh crore. Aggregate government fiscal interventions, from both states and the Centre, throughout COVID-19 tensed period, have been perceived to be procyclical so far, that is, they were able to drag on the growth when private demand was weak, and are now adding to the recovery.
Consequently, if in the September quarter, government spending had not fallen by 20% when the private demand was at an all-time low and had instead grown by 20%, overall GDP would have been nearly unchanged, as against the grim 7.5% contraction that was reported. A pick-up in government spending now is acting as an accelerator to growth when private demand is simultaneously growing.
Cliché’ to state that many companies have been facing a lot of setbacks in their businesses over the last fiscal year. This consequently has resulted for many of them to shut or scale down their operations. This eventually has resulted in large-scale unemployment across the country. This comes as an addition to the employment woes of India as last fiscal year India saw worst employment growth as unemployment was at a 45-year record high. The expectations from the forthcoming budget are huge and unending, to do away with unemployed masses despicable desperation.
As a measure for the COVID relief, COVID-19 can be included as a specified disease under the Act to provide the public with various reliefs in the form of medical expenses and insurance incurred by the individuals towards the treatment. This will also lead the public to enroll themselves in various health schemes.
Another expectation calls for exemptions that could be provided for compensation received by workers on retrenchment under the Industrial Disputes Act. Under the Industrial Dispute act retrenchment is the termination of service of the worker with the status of being merely retrenched with no compensation whatsoever. It would be an understatement to state that huge amount of people has lost jobs during the pandemic and this would come as a relief for the already battered economy.
The worst affected sectors included the aviation, hospitality and travelling sectors. Thus, the aviation sector demands high expectations in form of high fiscal support from the government. The sectors hope for reduction in high taxes levied on the airlines as they find their feet again.
The auto sector proved quite resilient and recovered quickly during the arduous pandemic. Thus, the sector now expects for demand creating measures to accelerate growth by the government.
Business that are engaged in selling of consumer durables, expect reduction in component prices. This measure should be complementary to government’s sales and consumer confidence boosting measures.
The savings sector was the worst effected as due to low market confidence, many people deflected away from long term savings. Many experts hope that the government will include certain measures to boost saving/investment in the economy.
The government is also expected to include measures in the agriculture expenditure, to pacify agitating farmers. This could lead to expansion of warehousing and storage capacity as mentioned in the laws.
As the government runs on low finances this fiscal year, tax on ‘sin goods’ is expected to rise. Tobacco and narcotics industry might see a tax rise for this fiscal year.
As a matter of fact, defense sector was the only sector that got boost during the pandemic. This happened in the wake of conflict between India and China. The defense sector is expected to get higher budget allocation this fiscal year with focus on indigenous procurement.
Corporate Social Responsibility (CSR) requires corporates to contribute 2% of their profits towards social responsibility. A specific provision can be introduced in the Act allowing a deduction against taxable income.
Further, proposals that facilitate ease of doing business and promote Make-in-India should be included in the budget as well. With ease of doing norms and greater investment friendly environment, huge FDI inflows in India will ramp up investments for infrastructure spending. Its tickle down effect will have an affirmative impact on the job market as well.
Lastly COVID-19 has brought forward the inefficiency and lack of the health care infrastructure in India. Thus, to promote healthcare infra, specific measures such as zero-rating of healthcare services should be allowed. This will help them to claim seamless credit therefore reducing the cost of these services.
In conclusion, India has been seeing the light at the end to the tunnel named COVID-19. The credit crunch in the economy triggered due the failure of the IL&FS failure in 2018, unemployment woes, stringent lockdowns, soaring daily positivity cases and contraction of Indian economy, India has been through it all. Thus, current budget is awaited with bated breath to provide much needed relief in the economy. This garners high expectations from the budget and we hope government delivers the relief with utmost proficiency.