Union Budget 2020-21: Budget 2020 is being keenly awaited by all stakeholders fuelled with the expectations of it reviving consumption and spurring growth in manufacturing.
- By Anil Talreja and Suvasis Ghosh
Union Budget 2020: Budget 2020 is being keenly awaited by all stakeholders fuelled with the expectations of it reviving consumption and spurring growth in manufacturing. The central government undertook various measures including reduction in the corporate tax rate, lowering of the Goods and Services Tax (GST) rates on select items, removing ‘angel tax’ for entities registered with the Department for Promotion of Industry and Internal Trade (DPIIT), etc., to revive industrial growth and boost consumption. Slashing corporate tax rate from 30 per cent to 22 per cent and from 25 per cent to 15 per cent for new manufacturers, was intended to incentivise companies to spend more. However, the measure is yet to realise its intended benefits as the country witnesses a prolonged subdued demand from consumers. Thus, the primary focus of this year’s Budget would be policy measures that are directed toward improving income of consumers by way of personal income tax cuts, employment generation, income support schemes, and prioritise manufacturing to spur industrial growth and investments.
Watch Video: What is Union Budget of India?
Direct tax reduction
The first and foremost expectation of consumers, and that of the population in general, is reduction in personal income tax rates through concessions in tax slabs. Such a move will help put greater money in the hands of
consumers and will also boost the sentiment of consumers. Given the subdued demand for consumer goods, reduction in personal income tax rates will lead to spurring the growth in the industry.
As part of the government’s reforms process, there will be greater focus towards income improvement of the population in lower tier towns and cities. Rural wages have largely remained stagnant in the last few years. After
adjusting for inflation, rural wage growth has averaged around 0.6 per cent in the last five years. A pick-up in rural income would have a cascading impact on rural consumption and on economy growth.
Given the current government’s endeavour for digitisation of payments and services, it is expected to facilitate 5G implementation across the nation. The next target for the government is to digitise non-urban centres in the
country which will not only help the population in general but also pave way for consumer companies to offer their services digitally to the hinterland.
Kirana stores (traditional mom-and-pop stores) form the lifeline of country’s retail — there are around 12 million mom-and-pop stores in the country, and these are expected to get a massive digital push. This will also be owing to
the large modern brick-and-mortar stores and e-commerce companies, which will increasingly partner with kirana stores to increase their own outreach and in turn help kiranas digitise their processes.
Government policy and regulation
To provide a fillip to investments in the sector from foreign countries, the government is expected to take specific measures and improve ‘Ease of Doing Business’ in the country. The government will also increase its efforts to attract FDI in order to boost industries and manufacturing and get closer to achieving its goal of becoming US$ 5 trillion economy by 2024.
Specific sectoral expectations
Textiles: Textile sector employs over 100 million population directly and through allied sectors and forms a noteworthy part of the Indian economy. Textile exporters need to be incentivised to become competitive vis-à-vis exporters from Vietnam and Bangladesh, as labour costs are comparatively cheaper in these countries. The government may execute this by allowing textile manufacturers duty-free access to key markets.
Gems & Jewellery: The Gems and Jewellery sector contributes nearly 7 per cent to India’s GDP. Further, it has about 15 per cent share in the merchandise exports of India. The government may help the growth of the
sector by lowering import duty on gold from the current 12.5 per cent and by launching new gold monetisation scheme.
Consumer durables and electronics: One of the key measures in the sector could be reduction of GST rates on electronic components and rationalisation of the slabs for various categories of products. GST rate cuts on components would provide manufacturers with an incentive to expand production. It will also ensure that the cost of consumer durables are reduced, thereby further increasing demand and consumption. This will help reduce import of components into India, and would be beneficial both from the point of view of government’s “Make in India” as well as the Phased Manufacturing Program (PMP).
Some of the issues faced by investors may be addressed by a uniform pan-country Retail policy. Thus, there is the need to prioritise the long due comprehensive policy formulation to boost investments. There is also the need to put more money into the hands of the consumers to boost consumption. The government, though, has to tread a tough line of balance as such incentives, subsidies and tax rate rationalisation may cause further deterioration in the exchequer balances.
- Anil Talreja is Partner, Deloitte India and Suvasis Ghosh is Director, Deloitte India.