Budget 2021 Expectations: What FM Sitharaman’s ‘growth Budget’ may offer – demand boost, capex, more

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Updated: January 01, 2021 1:46 PM

Union Budget 2021 India: The growth budget is also expected to further simplify and rationalise the GST, which could unleash some more vitality in the economy.

Nirmala Sitharaman Budget 2021 Expectations, Budget 2021 Expectations for growthDemand generation can be supported by giving more money in the hands of the lower bracket taxpayers and thus some changes in tax slabs are expected

Union Budget 2021-22 Expectations for Growth: Finance Minister Nirmala Sitharaman had said that she wants to see such a budget that is never seen in a 100 years, adding that the country is set to be an engine of global growth. However, the question is how would the government transfuse growth in the Indian economy, which has been contracting for the last two quarters?

Capex for multipliers

“Growth can take place through the generation of demand and investments. We can therefore expect higher allocations for capex that will provide the multipliers,” Ranen Banerjee , Partner and Leader – Government Reforms, Infrastructure and Development, PwC, told Financial Express Online. Incentives for the manufacturing sector and measures towards attracting more FDI can also be expected, Banerjee added.

Demand boost

Demand generation can be supported by giving more money in the hands of the lower bracket taxpayers and thus some changes in tax slabs are expected, he further said. The growth budget is also expected to further simplify and rationalise the GST, which could unleash some more vitality in the economy.

Base effect

While the government’s efforts will be a major factor behind the economic growth trajectory, the base effect will definitely play a significant role. The record slump in GDP growth in Q1 FY21 will elevate the growth percentage in the coming year’s first quarter and so on. “Growth will be facilitated by a significant base effect which is reflected in the contraction in all sectors other than agriculture, at least in the first half of 2020-21,” D K Srivastava, Chief Policy Advisor, EY India, told Financial Express Online. However, there are many factors that may hinder the path of growth.

Roadblocks to ‘growth’

An expansionary budget will be constrained by the weakness of central revenues particularly centre’s tax revenues, Srivastava added. Centre’s gross tax revenues had contracted in 2019-20 and there is a strong likelihood of a contraction in 2020-21 as well, he further said. This is expected to lower the base figures on which a moderate growth can be applied in order to assess the available resources in 2021-22 to finance an expansionary budget. This will prove to be a major constraint because even if the fiscal deficit is maintained at a high level, say, around 6 to 7 per cent of GDP, it will still be difficult to finance an expenditure growth of more than 9 to 10 per cent in 2021-22, Srivastava concluded.

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