Budget 2020 India: Apart from these measures, the markets would get a boost on the government announcing cuts in LTCG taxation and changes wrt grandfathering date and dividend distribution tax.
By S Ravi
Union Budget 2020 India: The industry, amidst consumption slowdown and a six-year low GDP, is pinning its hope on the implementation of policy initiatives and tax sops to revive the economy. The IMF has cut India’s growth forecast to 4.8% for the current year. The last budget was focused on ramping up the supply-side, funding infrastructure investments and addressing liquidity concerns of NBFCs. The expectations from Union Budget 2020-21, however, are to address the fiscal deficit concerns and revive the demand side.
Rural economy: Despite companies announcing various offers, demand in the rural areas has not revived in the wake of falling crop prices, erratic rainfalls and stagnant wages. The government, therefore, must announce measures for reviving the farm income, investments in rural infrastructure and focus on MGNREGA. This will give rural households more money to spend FMCG, automobile and capital goods.
Changes in personal taxation: Last year, the government tweaked the corporate tax rates and this year personal income tax slabs of lower-income and middle-class group, who are demand revivers in rural and urban areas, is widely expected. The government may change slabs and introduce lower rates. There is also an expectation of increasing the interest deduction from the present limit of Rs 2 lakh, considering the high cost of capital. A higher interest deduction would also act as a stimulus for the real estate sector. Another tool could be to increase the limits for 80C from Rs 1.5 lakh to at least Rs 2 lakh to provide further income in the hands of the personal-tax payer.
Employment challenges: As per reports, the unemployment numbers have been on a steady rise on account of the downturn with many companies in the urban cities reporting retrenchment. The government has been implementing measures on ease of doing business, inviting business houses as well as focusing on labour reforms.
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The expectations are allocation of funds to boost investment in infrastructure, social sectors and agriculture, which allow creation of large scale employment in smaller cities and villages. With the report by the task force for the National Infrastructure Pipeline (NIP) having outlined plans to invest a substantial sum of over Rs 102 lakh crore in various infrastructure projects, expectations are rife that the budget would provide a roadmap on implementation plans for 2020-2025.
MSME sector: This sector is a key driver of job creation and economic spurt and higher budgetary allocation will give a push as it contributes 9% to the GDP and 48% to exports. Major reforms and policy interventions towards ensuring timely availability of low-cost credit, improving ease of doing business and technology upgradation would be a key takeaway from the budget.
NBFCs and banks: This sector requires impetus to pave way for credit growth supported by enhancement in retail lending to revive demand for housing, automobiles, and capital goods.
Clearance of all government dues in construction, power sector, and other infrastructure projects, providing for re-capitalisation of banks and non-banking financial companies and further simplification of GST as well as rationalising the GST rates further would boost the economy. Apart from these measures, the markets would get a boost on the government announcing cuts in LTCG taxation and changes wrt grandfathering date and dividend distribution tax.
Though there are high expectations from this budget, the government has to announce measures keeping in mind the balance between fiscal deficit, economic growth and inflation control amidst the global trade wars and oil price escalation tensions.
The author is Former chairman, BSE, and founder, Ravi Rajan & Co. LLP