We’ve already seen the recent pandemic accelerate trends like work-from-home and digital use in our lives. The current fiscal stress from Covid-19 with an urgent need for economic repair may just trigger some fresh thoughts in the forthcoming Budget.
At the outset, it’s heartening to note the good Budget practices introduced in recent past – whether the advancement of the Budget Day to February 1, to ensure adequate time for policy implementation, or the decisive transition to digital docs this year. The innovation is rooted in decisive action, which merits adulation and emulation by other government entities.
Notwithstanding the fact that we would likely witness the widest budget shortfall ever this year, the fiscal scenario is not as gloomy as the market fears. What has been lost on revenue front, has been kind of offset through expenditure cuts.
More importantly, the spend would be in check for the rest of FY21, with government choosing to save it for FY22, when mobility is hopefully back in full swing. Thus, total revenue would drop 10 per cent, but expenditure would move up only 3 per cent in FY21.
Consequently, fiscal deficit would stand at 6.1 per cent vis-à-vis the general expectation of 7.5 per cent. In fact, in terms of budget estimates, this year’s expenditure would be the decade’s lowest.
Thanks to this leeway on the fiscal deficit front, the government would be able to retain its focus on economic revival in FY22. Having said that, the Finance Minister is unlikely to go overboard on all Budget spending.
Given that 98 per cent of all expenditure is routine and merely 2 per cent capex in nature, the FM will target measures that may reduce some of its earnings but help stir sectors instead.
For instance, enhancing Sec 80c limit to Rs 2.5 lakh will help boost savings, as also augur well for the housing sector. Similarly, a higher Sec 80D limit will strengthen medical coverage in our country.
Production-linked incentive (PLI) has proved to be an excellent scheme to boost manufacturing. Going forward, we can expect more incentives to boost domestic manufacturing, exports and FDI, as also tailored PLI schemes in new sectors like laptops, desktops, IOT devices, and white goods like LED products and ACs.
While we don’t expect any further cuts in income tax rates or corporate tax rates, we foresee a massive disinvestment drive in FY22, especially given the upbeat stock market. In our reckoning, the government would target Rs 2,00,000 crore divestment, the figure they pursued last year, but feel short. In the wake of growing regional conflict, we also sense a hike in defence spend.
The growth in Budget expenditure would likely be curbed at 14 per cent. On a low base, we expect total Budget revenue to grow by 33 per cent in FY22, which will allow the FM to target a fiscal deficit number of 4.8 per cent, a gesture that would send positive vibes to the market.
The FM has already raised expectations by promising a budget “like never before”. If it truly turns out to be “like never before”, we will have the opportunity to rejoice like never before, even as we emerge ‘hurt but hopeful’ from the shadows of the Covid pandemic.
A “like never before” would embrace many more steps like say, stimulus for high employment-generating sectors like auto, textiles, and real estate, 1 per cent GST cap for under‐construction projects, additional deductions for home buyers, possibly a creation of a bad bank and lots more.
The only recurrent fear is a further hike in LTCG and the introduction of wealth tax in some form. If the government steers clear of these draconian moves, the stock markets will have a lot to cheer for.