Global challenges may have a bearing on the Budget
The upcoming Budget to be presented on February 1 could be one of the most challenging for Finance Minister Nirmala Sitharaman. The Budget has to balance out the recessionary trends seen in other geographies, particularly the developed ones, manage the fiscal situation domestically, keep the domestic consumption hydrated, while keeping inflation within reasonable limits.
These challenges have been laid out in the run up to the budget’s digital document preparation and she has heard it from various stakeholders as part of the multiple consultations.
The industry wants more disposable income to be put in the hands of the middle class, which is yet to recover from the impact of the Covid-led organised sector slowdown. The rising prices of food and fuel primarily impacted due to the Russia-Ukraine War. It is an added burden on the middle class, which is also a large and organised voter base. There have been demands to decrease the current highest tax rate slab from 30 and increase the limit from current Rs 10 lakh.
It makes sense since the current rates and threshold limits do not reflect the average rise in costs of living annually for the average middle class.
In the past, Sitharaman has steered clear of making any significant changes in the IT structure for the salaried, but this tool can be used in the upcoming budget to keep the morale high.
The other long pending demand from the industry and investors is changing the capital gains tax regime. Several Finance Ministry officials and tax experts acknowledge the complex processes involved while filing tax returns, when it comes to definitions of capital gains. Capital gains tax rates fluctuate based on the type of assets and the period for which it has been kept. This creates a speculative market for almost all asset categories including gold, financial products, land, or buildings, etc. A simpler capital gains tax regime with simpler tax rates could again put more money into the hands of the consumer.
This apart, the Government in the upcoming budget is most likely to continue the path of strict fiscal discipline, which to its credit, has been tackled well so far, despite several challenges from pandemic year lockdowns and slowdowns. The emphasis would be in controlling the fiscal deficit to a healthy manageable 6.4 per cent of the GDP (gross domestic product).
Also, one of the factors which kept the wheels of the Indian economy moving and buoyant during and after pandemic years was the rural sector demand. One of the key drivers of this demand has been the rural employment guarantee scheme which again puts money into the hands of the rural consumer. This leads to more shampoo, shoes, soaps, etc., being sold in rural markets and increases jobs or those working in factories. This happens even if the region faces inclement weather which impacts agricultural activities.
The Government is most likely to continue with the rural employment guarantee schemes but would focus more on asset creation in the villages in the form of roads, permanent structures, etc., which serve a meaningful purpose in local communities. It will be a tough Budget for the Finance Minister, but she has now got nearly five years’ experience, so expect some sharp messaging coming out from her Budget speech.
(The author is a foreign affairs commentator)