TODAY IN post-Covid era where world and India is struggling with corona and now, new strain, even 2021 looks hazy, but with hope for a successful and effective vaccine. What is needed is a strong and continuous dose of fiscal stimulus across the board and to specific sectors, keeping in mind, both, short and long term goals of economy.
India’s macroeconomic fundamental are turning positive and strong. IMF has now projected that India’s GDP may grow by 11.5% in year (2021), higher than China (8.1%), France (5.5%), US (5.1%), UK (4.5%), Russia (3 %) and Germany (3.5%).
Budget session of Parliament shall commence on January, 29 and conclude by April 8, 2021 with Union Budget 2021-22 being presented on 1st February, 2021. This year’s budget is going to be historic amid Covid-2019 pandemic and is likely to address the challenges arising out of such pandemic on economic and health fronts.
While most of the stakeholders are worried at new cesses or taxes or surcharge to take care of additional expenses to meet defence, health care and infra needs, the major challenge before the FM would be how to balance the additional resources and yet keep common man, trade and industry happy. The states would however, prefer taxes over any surcharge or cess as sates do not get any share out of these levies, though they benefit from the Government spends.
The Union Budget should try to ensure balanced economic growth of all sectors of economy and society, besides, squeezing the inequalities. This budget is crucial for future economy. It should lay a foundation for a resilient and robust shock-proof economy which can take on any challenge or any pandemic successfully.
There is a general sentiment that no new taxes should be levied or tax increased to keep the economy going. This would otherwise adversely impact liquidity, demand and consumption. Infact, Government may like to or rather should make an attempt to unlock the tax revenue which is blocked in litigation and tax disputes.
Tax revenue is likely to witness a shortfall in financial year 2021 due to long lock-down and set-back to businesses. Fiscal deficit is likely to be around 7.5% of GDP. Though the tax revenues have improved over the past few months, they are unlikely to cover the short fall in tax collection.
On direct taxation, it is hoped that the fear of new taxes or cesses or surcharge in the back drop of Covid-19 proves to be a myth and Finance Minister is able to walk the tight rope of balancing the resources in a manner that new taxes and levies are avoided. While no major new exemptions or deductions may be expected or called for in the present backdrop, efforts must be made to ensure to boost the demand and consumption by leaving more funds in the hands of citizens.
If this could be achieved, this will have a multiplier effect on manufacturing /production and entire supply chain. This will move the economy, businesses, trade and services. Thankfully, agriculture is already in a safe trajectory this time. Similarly, a lot needs to be done to boost public expenditure and infrastructural development. All this will also help job creation and help address employment issue.
Union Budget may not have any major proposals in Goods and Services Tax (GST) as they have to go through deliberations in GST Council (a body of all State Governments and Central Government representatives) and be recommended by the Council to the Parliament for legislative changes.
If budget could do anything to GST, it should try to bring natural gas, fuel and real estate in its fold. Alcohol and power are two other sectors. However, chances are bleak as there are no such recommendations yet from the GST council.
Tax laws ought to be made simple to comply with. With everything now being shifted to digital mode, necessary infrastructure should be in place- for both direct tax and indirect tax besides for other corporate compliances.
Budget should also trying raising resources within India via zero coupon bonds and tax saving bonds which will have twin benefits for Government- access to low cost capital and huge funds coming from citizen without increasing the tax burden. It would also add to domestic savings.
While inflation will have to be kept under control, India also needs long-term and robust fiscal control over banking sector. Non-banking financial companies (NBFC’s) are relevant in Indian context and there could be a separate regulator for NBFC sector delinking regulation of NBFC’s from RBI’s fold.
The management of Non-Performing Assets (NPAs) be better left to RBI alone with least of interference.
Digital economy, various e-platforms, e-taxation regime, cyber security, online education etc are some areas where focus is needed. India need to find out opportunities and build on from here.
The sectors of health care and education ought to be focus areas in forthcoming budget with emphasis on digital education and ensuring quality health for one and all across pan India-rural, remote and left out regions.
The year 2021 is a year of hope with Covid 2019 impact in decline as it appears from lower new cases, lesser deaths and faster recovery coupled with vaccination process in action now. Also, this would directly impact economy with positive vibes.
Also Read: Covid, Economy and GST
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