Saturday’s Union Budget to be tabled in the Lok Sabha will be the most awaited and the most challenging one to be presented, as the country is going through a major economic slowdown. The Economic Survey presented on Friday indicates that the economy will improve. But will the Budget make this happen? In the past year, besides the annual Budget in February a year ago, there was another in July last year by the new Finance Minister after the Lok Sabha elections and then a number of reforms announced at periodic intervals in the following months as the economy showed no signs of improving. This places immense pressure on the 2020-21 Budget to change the course of the economy and bring in reforms that will bolster the flagging financial markets.
The country’s economic growth is at a decadal low of 5 per cent, while inflation has been constantly rising, with the consumer price index having touched 7.35 per cent in December last. Consumption, manufacturing, investment, agriculture are all down. Unemployment is increasing and there have been cases of companies that have closed down in the last few months. In the past year, Reserve Bank of India has cut the repo rate six times. The slowdown is expected to lead to a massive revenue shortfall for the government, which makes this Budget one of the most important in recent times, as the country hopes for some recovery in the economy.
There is need to look at increasing the spending power of the people to revive economic growth. The cost of living has gone up. Measures introduced months ago to increase spending, by reducing corporate tax among others, have not achieved the desired result. Individual taxpayers are hoping for amendments in the tax slab limits or a reduction in the tax rates in the Budget. This could increase the disposable income that people would have and so lead to more spending. It is in empowering the consumer to spend that the economy can be given a boost. On the other hand, with revenue down, the government may again refrain from giving individual taxpayers any relief. Tax cuts, therefore may just not happen, as increasing revenue could override other considerations.
Other than the tax proposals that the Budget contains, there would be more announcements, and almost every sector is hoping that there will be something for them. The telecom industry is hoping for a reduction in licence fees and spectrum usage charges, while the construction industry looks forward to tax cuts for them. The infrastructure sector wants exemptions from cross-subsidies and transmission charges that they hope will boost them. At the same time the aviation sector is expecting a raise in the FDI. With Air India to be sold later in the year, this may happen so as to make it attractive to investors. The list of sectors that the Finance Minister has to look at and include in the Budget is long. Will she be able to do justice to all the demands?
As India aims to become a 5 trillion dollar economy, the expectations from the Budget are many, but will the Finance Minister provide the roadmap to achieve that ambitious target? Nirmala Sitharaman will have to achieve a delicate balance as she struggles with falling revenues and increasing public expenditure. With a massive majority in the House, and elections four years away, she does not have to worry about presenting a populist Budget. That may not be good news for those who are expecting a Budget that will be easy on the pocket. One aspect remains certain, the country needs a Budget that will turn around the economy, and preparing such a financial plan will be no easy task.
