All eyes are on Finance Minister Nirmala Sitharaman as she has promised that the 2021-22 Budget will be like no other in the past and help India emerge the engine for global growth.
If, indeed, she redeems this promise, the Budget she will present tomorrow can be expected to be ‘expansionary’, with at least a 10-15 per cent increase in expenditure over and above ₹30.42-lakh crore proposed in the last Budget.
A hint of what the Budget could offer also came from Prime Minister Narendra Modi’s customary remarks on the opening day of the Budget session of Parliament. He said the Budget should be seen as a part of a chain of the ‘4-5 Mini Budgets’ 2020 saw.
Chief Economic Advisor K Subramanian has also pitched for more spending. All these aspects build expectations for generating a demand push by spending rather than through tax cuts. Eminent economists, too, feel that there is no room for tax tweaks. “A revenue neutral tax reform, which simplifies taxes, would stimulate growth, particularly of MSMEs, but any rise in tax rates would send a negative signal for investments,” said Arvind Virmani, Chairman, EGROW Foundation.
With income-tax rate reduction not on the horizon, change in slabs is a possibility. Also, in order to raise additional revenues, a cess/surcharge versus Covid bond debate is on, with the balance tilting towards the latter. A tax-free Covid bond with a separate limit over and above existing caps under various Sections of the Income Tax Act can make this an attractive instrument and increase the savings kitty.
“We know that such recovery that has happened so far is profit-led. Income support to daily-wagers and small businesses is essential. The big guys are having a good pandemic at the expense of the small. Fiscal policy can correct this. But the question remains that given the Central government’s poor execution record on public spending, can they do this relying solely on simple instruments like cash transfers. They cannot even accelerate payment of dues for purchases made,” Rathin Roy, Managing Director, ODI London said.
With a new Public Sector Enterprises policy approved, disinvestment and especially privatisation is likely to get a push. This is also critical as the government needs more non-tax revenues, and asset monetisation is a solution. Official sources said that a lot of work has been done on creating a ‘land bank’, so it won’t come as a surprise if the Budget talks about it. Indications are that the Budget will focus on neo-middle and middle-class as there is a feeling that this segment needs support. The options being explored include raising the exemption limit for housing loan and bringing in select exemptions for the new income-tax paying option that offered lower rate but no exemptions.
Focus on health, infra
Two areas the Budget will definitely focus on are health and infrastructure. Part A is expected to bring in some new schemes, including one for boosting employment and start-ups. The buzz is that for ailing power distribution firms a booster shot, in the form of loans, may be offered, as the recoverables are mounting.
Incentives could be in the offing for the renewable energy sector. PM-KISAN and pension schemes are expected to see some modifications. To bring down the cost of raw materials, measures like lowering the import duty could be considered.