The challenge is pretty much the same, matching the rate of inflation with the growth in income level. The markets have been riding high for a long time, and it is expected that the focus would remain on reducing fiscal deficit, reviving investments, and thus boosting growth. The Analyst community at Dalal Street expects the new mandate-driven government to deliver a pragmatic Budget, which is inclusive and cleverly mixed up with doses of 'bitter medicine', that in turn lays down the foundation for growth. That said, there are a couple of expectations that will help the government get on good terms with the public-disguised-as-fans, and they spread across different sectors:
Medical Expense Reimbursement: In the absence of a public healthcare system like the West, and with private healthcare becoming more expensive, it is important that the current exemption limit of Rs 15,000 per annum be increased to at least Rs 50,000 per annum.
Coveyance Allowance: Travel distances have turned long, fuel costs have risen, so quite naturally the public expects the exemption limit on conveyance allowance to be increased from the present Rs. 800 per month to at least Rs. 1,600 per month.
The 80C Deduction: It is vital to increase the deduction under Section 80C from the current limit of Rs. 1 lakh to about Rs. 2.5-3.5 lakhs this will help us enhance our long term savings and investment. Introducing separate deductions for education and a social security system are also strong measures that would do the country some good in the long run.
And, the 80D Deduction: The present healthcare ecosystem in our economy calls for increasing the limit on deduction of mediclaim insurance from Rs. 35,000 to Rs. 55,000, thus aiding not only a tax incentive, but also health care coverage.
Eventual Internationalization of Tax Slabs: The tax slabs need to be re-assessed keeping in frame the international trends and considering the fiscal deficit situation, we could probably look at raising the basic income threshold on which tax liability triggers (Rs. 2 lakhs per annum currently), as well as the income threshold on which maximum tax rate and surcharge triggers (Rs. 10 lakhs p.a. and Rs. 1 Crore p.a.).
Doing away with STT: Securities Transaction Tax, when levied, adds to the cost of the transaction (on transfer of listed securities), as it acts as a deterrent to smaller investors and reduces participation in the capital markets.
Important Feelers: Like everywhere else, communication will play a big role on how this government is seen post July 10. The message that goes out to RBI should be to restrict subsidy to 2% of GDP and increasing the share of plan expenditure. The Corporate Sector needs to be told that this government is going to go all out for improving the investment climate and project-clearance related governance. Moving towards a non-adversial tax regime and introducing the deadlock on introduction of GST are excellent tools that Mr. Modi and Mr. Jaitley possess. Lastly, the government needs to make sure that the aam aadmi is happy reducing the burden of inflation, providing incentives in personal taxation and the like will do the trick here.
While this so-called laundry list remains important, what is more critical are bringing in innovative ways to optimize revenues, and begin improving the tax to GDP ratio. Optimization on the non-planned expenditure, more focus on planned expenditure growth, etc. are measures which could potentially act as very constructive for the Indian economy.
Another important area, which just cannot be ignored, is the speedy implementation of GST. This will ensure a lot more things immediately fall in sync. In fact, tax administration is one area in which the new government can make immediate impact even more when we know that industry has suffered owing to the harsh indirect tax regime for about a decade now. If Mr. Jaitley, this July 10, can send the right signals about the administration being more balanced that litigation-dependent, it will set the tone for steady industry recovery. One fine example to demonstrate that would be by making an amendment to clear any uncertainty about restoring the concept of transaction value as the basis of paying excise duty.
Early news has also suggested that we could soon have a liberal foreign investment policy that allows 49% investment in all sectors barring the few that are of national importance. Clearly, the plan here is to lift the Indian economy out of the supposed prolonged slump.
In the offing is also a proposal to settle the much famed FDI in multi-brand retail issue. It is expected that the Ministry might come up with a simplification in the policy that will end the burgeoning difference among various forms of foreign investment.
Mr. Jaitley is an intelligent person, and he has already gauged the present mood be it India Inc., foreign investors, stakeholders to Budget 2014 or we, the people. He knows that this being BJPs first major policy document, expectations are high. At the same time, he also knows that it this budget, which will form the basis for the vision Narendra Modi has shown the country which, like all paths, will be difficult to begin with. It will be critical for the BJP to convey this message to the nation and get them behind on this story of growth, much like Bill Clinton did in the early 90s.
Be prepared India - for a bold budget, a balanced budget, and a budget that takes India forward!
By Akshay Chaturvedi, PGP Class of 2015, Indian School of Business (ISB)