New budget has to set pace for 5-years Ebangla Bureau
The Central Budget to be tabled in a few days has many hearts
beating, many hopes rising and sets the pace for the economy. The high
expectations may not match the formulations that are not likely to be easy, if
not tough. Amid the raucous of farm laws, RSS top leader Suresh Bhaiya ji Joshi
has suggested a middle path to resolve the issue. A top magazine survey reports
that 73 percent of the people have faith in Prime Minister Narendra Modi and
pandemic, recession and protests could not dent it. This makes the government
confident in presenting its budget proposals despite a severe contraction and
possible fiscal deficit (contributed by revenue deficit) of 7.5 percent,
(against the targeted 3.5 percent) which are likely to have some sops but may
have many sugar-coated harsh pills. Some
showpiece programmes may have to be kept in abeyance. The budget needs to
loosen the purse, injection of cash for boosting consumption, raise funds for
stimulus, lower bank NPAs, more funds for rural schemes, special support to
stressed sectors like tourism, hotels, aviation and railways and make industry competitive.
Though it is not centre’s direct concern but while crafting the budget it would
have to take care of the historical high in combined fiscal deficit of the
state hitting a peak of Rs 8.7 lakh crore, or 4.7 percent of their GDP,
according to a Crisil study. The large deficits of states and centre together
of around Rs 20 lakh crore would have sticky impact on expenditure as committed
expenses like salaries, pension and interest payments would take a major share
of thin earnings. The government naturally would have to struggle with
developmental and day-to-day running expenditures, which are difficult to cut
at such difficult times that require boosting of economic activities. The housing sector is in focus and a credit-linked
subsidy may be introduced along with liberalized FDI. Retail sector also needs
a boost. There are rumblings of hiking import duties on 50 items – from smart phones,
electric vehicles to refrigerators and air-conditioners – being raised possibly
by 5 to 10 percent. Though it may raise prices of many goods it is expected to
raise Rs 20,000 crore. Various duties and cess on petrol also are being
reviewed as the country has the highest price on fuel. There are suggestions to
reduce it as it causes general inflation. The pandemic has given a blow
to India’s exports leading to a 25-month high of trade deficit in December as
growth in merchandise imports outpaced exports. Imports expanded 7.56 percent,
while exports rose 0.14 percent, according to the commerce ministry. It is
obvious that the government would have to depend on direct and indirect
borrowings. The revenue raising measures are imperative and that may impact the
farm incomes too as secondary sales of farm products are likely to be brought
under GST. It means while the sale by the farmers would not have a tax but all
subsequent sales by a trader or arhatiya would be called for GST
details. It would also lead to imposition of income-tax on them. This can
constrict the farmer’s income and rural cash flow.
With thousands having lost their jobs, and many more having had to undergo a
salary cut across the country due to the COVID-19 pandemic, Finance Minister
Nirmala Sitharaman might be looking at possible ways to put more disposable
income in the hands of the people. One way is to raise the I-T threshold to Rs 5
lakh but a big if remains there. Some minor
cuts may be announced but that might be taken away by some major steps. In
reality, it would be prudent to have no income-tax as less than 3 crores are
I-T payee and constriction of their incomes comes in the way of market growth.
It is necessary to lubricate the economy as India’s per capita income in 2017-18
is Rs 44,901 or Rs 3741 per month as per the Ministry of Health and Family
Welfare’s Longitudinal Ageing Study. According to Periodic Labour Force Survey
(PLFS), it is Rs 29896 annually (Rs 2491 a month). (A private Indian Human
Development Survey mentions it as Rs1,26,968 or Rs 10580 a month). Either of the figures is not representative
of the earnings of average citizens hinting that income-tax in such a poor
country is euphemism and a burden on the society as collection costs are more. About
2.99 crore resident Indians filed ITR-1returns till January 10, 2021 which is
less than 3.11 crore filed till September 2019.However, to include
technological changes the I-T Act may be amended. This budget is not considering
scrapping I-T though it needs to be done as overall industrial production (IIP)
growth contracts to 1.9 percent, manufacturing 1.7 percent and capital goods
output declines by 7.1 percent reflecting demand contraction. In reality, the
process of contraction is evident even in November 2019. This has implication
on revenue earnings as also on job growth. These are critical issues that the
budget has to address calling for an impetus to overall economic activities. The
pandemic-stimulus ensured loans for low-income people but now the banks say
that most of these have turned into NPAs.The public sector is in focus. It has
raised Rs 40,000 crore through bonds. The sector may be given a capital infusion,
including considering a bad bank.
It may also increase divestment target to Rs 3 lakh crore through long-pending privatization
of Air India, BPCL, Concor and Shipping Corporations. It is also looking at tax issues related to business
organisations, mergers and amalgamation and restricting forwarding of losses in
case of change in shareholding with a view to mopping more revenues. Post-covid19,
the economy remains in critical condition and medium-term growth is to remain
slow, Fitch Ratings say. It is to remain at that level till the 2026 financial
year – meaning the government has to gird up its loins for the next few years.
The budget making would be a herculean task as nominal GDP is 4.2 percent lower
than the previous year. Eyes would rivet on how taxes are raised and funds are
earmarked to mark the growth to have a dream for Rs 5 trillion-economy dream.
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