Budget 2020 Expectations for Industry: The need of the hour is large-scale reforms and the immediate measure to bring demand back in the economy and lead India to double-digit growth.
Budget 2020 Expectations for Industry: With India’s GDP growth rate touching a six-year low of below 5% in the second quarter of FY20, coupled with a decline in consumer spending, the upcoming Union Budget raises expectations of big-bang measures by the government.
The government is well aware of the high stakes involved and has begun consulting the who’s who of the industry, taking their perspective on the policy measures that can boost the economic engine of India. The need of the hour is large-scale reforms and the immediate measure to bring demand back in the economy and lead India to double-digit growth.
Here’s a list of expectations from the Budget 2020.
The industry received a tax cut last year to boost private investments in the economy. The budget can increase the average taxpayer’s spending capacity with a higher tax rebate. Currently, an individual earning an annual income of over Rs 10 lakh falls under the 30% tax rate slab. Those with a taxable income of Rs 50 lakh to Rs 1 crore pay an additional surcharge of 10% of income tax. The surcharge goes up to 15% for people having a taxable income of more than Rs 1 crore. To increase consumer demand, there’s nothing better than increasing consumer liquidity of consumers with larger tax cuts. The higher the number of consumer purchases, the faster the Indian economy can come out of the slowdown.
The Indian real estate sector has been in the doldrums for over a decade. Hundreds of incomplete projects have created a liquidity crunch in the market. Both banks, as well as individual buyers, have been bearing the brunt of this situation. The government must ensure a separate fund allocation for the completion of stalled projects. The tax incentives for affordable housing projects should continue in FY21 as well.
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The auto sector, hit by the sharpest decline in nearly 19 years, has been in a bad shape. Companies have had to resort to stalling production and, in some cases, cut jobs. To bring the auto sector out of this situation, there’s a need for an incentive-based vehicle scrappage policy for removal of the old and polluting vehicles, registered between 1st April 1995 and 31st March 2005, from the Indian roads. SIAM (Society of Indian Automobile Manufacturers) has also proposed the government to permanently increase depreciation rate for passenger vehicles and two-wheelers to 25% to make income tax leviable on the real-life of vehicles. It is also suggested that a significant budget allocation be made to the Ministry of Urban Development to support State Transport Undertakings in procuring buses with other fuels like CNG, diesel or biofuel – this will revive demand for commercial vehicles.
When it comes to the e-commerce sector, the focus needs to be on the MSME segment and B2B players. Tight FDI rules will create more space for the homegrown players. The rollout of the National Policy on e-commerce should be accommodative of the needs of investors, ensuring a smooth growth of the e-commerce ecosystem in the country that has generated lakhs of new jobs over the last decade.
Looking at the liquidity crunch that the NBFCs are facing for over two years, the Union Budget 2020 should focus on creating channels that bring liquidity back into the system. The help should be in line with the ones received by nationalized banks post-2013 when the non-performing assets reached a record level. The NBFC sector caters to the needs of the unorganized sector in India, the most. At the moment, it needs the government’s support.
Between 2004 and 2007, when India came close to touching the 10% growth rate, the biggest contribution to the rise in demand was coming from the rural economy. Over the past few years, the liquidity crunch in the Indian economy has been felt the most in rural areas, forcing people to cut down on their expenditure. This is visible in the decline in sales of consumer durables, automobiles and FMCG sales in rural areas. If the Union Budget opens up liquidity channels for the rural economy, to boost demand and increase consumption, it will have a cascading impact on the whole economy.
(By Bala Parthasarathy, CEO and Co-Founder, MoneyTap)