Indian Union Budget 2021-22: Economists on Saturday impressed on the government to keep up the focus on growth, reconstruction and reforms, as it prepares for a Budget ‘like never before’ to bring the Covid-battered economy back on track fast.
In a pre-Budget consultation meeting with finance minister Nirmala Sitharaman, the economists held that while the government need not unduly worry about the fiscal trajectory for FY22 and continue to spur official spending, it should keep the Budget targets — especially for revenue collections — realistic, factoring in the damage caused by the pandemic. Earlier in the day, Sitharaman held a virtual meeting with trade bodies as well.
The government had budgeted a 3.5% fiscal deficit for FY21 but its projections went haywire due to the pandemic and analysts now expect it to soar to 7-8% of GDP this fiscal. Similarly, general government debt is expected to soar to as much as 90% of GDP this fiscal.
As for growth, thanks to lower-than-expected contraction in real GDP in the September quarter, some agencies have bettered their projections for this fiscal. The latest projections for a contraction in India’s real GDP for FY21 are in the 7.7-10% range, with an expectation of a sharp rebound (about 9-11% expansion) in the next fiscal.
For their part, trade bodies sought greater flow of cheaper credit. They want the credit cost to be pegged at just 2.2% above the repo rate of 4%. Greater coverage for exporters by the Export Credit Guarantee Corporation under the so-called Nirvik Scheme is also the need of the hour.
Federation of the Indian Export Organisations Sharad Kumar Saraf said: “We need to bring double tax deduction scheme for internationalisations to allow exporters to deduct against their taxable income, twice the qualifying expenses incurred for approved overseas activities, including market preparation, market exploration, market promotion and market presence.” A ceiling of $5,00,000 may be put under the scheme.
Similarly, he pitched for easier and more timely GST refunds and tax deduction on production development, in sync with that for R&D. Also, the tax deduction on R&D spending, which was cut from 200% to 100%, may be restored, Saraf said.
The economists who attended the meeting included former deputy governor of RBI Rakesh Mohan; executive director for India at the IMF Surjit S Bhalla; chief economist at Aditya Birla Group Ajit Ranade; and Arvind Virmani, former chief economic advisor.
Industry chamber PHDCCI also on Saturday suggested a 10-pronged strategy in pre-Budget consultations with the FM with focus on refueling consumption and demand and encouraging private investments to attain higher economic growth.