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Finance Minister  Nirmala Sitharaman will be presenting the Union Budget of 2020 on 1st February. What the budget reforms have in store to curb the economic slowdown that has gripped our nation in the past year, is what most of us are looking forward to. 

Needless to say, FM’s primary task would be centered around rolling out reforms to bolster the economy and rebalance the lower consumption rate. Unemployment, under performance of certain sectors , and lower tax collections are again certain areas the government would have to target. 

While we wonder what’s in store for the nation, here are three main expectations from the budget, as expressed by industry leaders and general public . Read on! 

Where Do We Stand? 

When it comes to the budget, it  is important to know about the economic survey . Economic survey comes a day prior to the budget and can be thought of as the government’s fiscal report card . It’s a flagship annual document of the finance ministry. It reviews the developments of the Indian economy over the past financial year. Simply put, this document is a brief  of the objectives set by the government in the past year, and shows whether they have been achieved or not. If they haven’t been achieved then what’s the gap? Let’s see our current standing in three important areas – tax collections, GDP growth rate and fiscal deficit. 

Fiscal Deficit 

Fiscal deficit can be defined as the difference between the government’s net income ( Total taxes and non debt capital receipts) and the total expenditure. We call it a fiscal deficit when the expenditure is more than the income. Needless to say a consistently high fiscal deficit means, the government is spending more than its income and is not a good sign. The fiscal deficit target set in last year’s budget was 3.3.%. However, going by the reports of analysts and if experts are to be believed, we may overshoot our fiscal deficit this time. The expected fiscal deficit is said to be around 3.5

Tax Collections 

Now we know that the government makes expenditure on various fronts to provide us with civic amenities. The source of income for the government here is indirect and direct taxes. Direct taxes is the  tax paid by citizens of India as income tax . The other is GST which is indirect tax paid by taxable individuals on the supply of goods and/or services. In GST too, there is CGST or central GST collected by the central government and SGST or state GST collected by the state government . So if we talk about the Budget of last year, the government gave an estimate that this year they will earn 11.19 Lakh Crore Rs in taxes and out of this , 5.26 Lakh Cr will be from central GST. As of November 2019, this collection was 3.26 Lakh Cr .  So now the economic survey will tell us when the  government would be able to achieve the target tax collection . A common observation is that whenever the government faces issues in tax collection, the fiscal deficit increases. 

GDP Growth Rate 

Till last year, Indian economy was the world’s fastest growing economy. If we look at the numbers right now, our economy is growing at the rate of 4-5%. However, if we look at the last budget, the expected rate was told to be 7-8%. The slowdown of the economy  was due to the changing consumption patterns of Indians. Several measures like the RBI slashing interest rates were done to propel consumption habits in the positive direction too. What concrete measures the government would need to take further to get us back on track, is to be seen.  Let us now take a look at the 3 main expectations from the budget. 

Expectation 1 : Income Tax Slab Rejig 

A flat tax rate without exemptions, new slabs for those earning higher incomes, cuts in personal income tax in line with those in corporate tax; these proposals are being examined ahead of the budget as the government eyes ways of boosting consumption and reviving growth.While reduction in tax for salaried is most expected announcement , it may have limited impact on revival of overall demand, as only 6% population files tax.

The implementation corporate tax cut by central government as well as the bold move of slashing GST rates on items such as outdoor catering, hotel accommodation, diamond work, electric vehicles and housing were strong steps to bolster consumption, however, the shrinking consumption coupled with the rate slash affected India’s tax collection by Rs 1.45 Lakh Crore. Keeping this is mind, it seems difficult that the government would implement any more tax rate cuts ,however, we can only speculate. 

Expectation 2 : Sector Specific Announcements

To improve consumption, the government may target revival of sectors that have maximum reach to the consumers. Some high focus sectors that may see reforms are  manufacturing,construction and infrastructure. Owing to their high employment intensiveness. Also, these three sectors currently have seen a slowdown. For instance, the manufacturing sector is reportedly growing at 3% which is the lowest of 13 years. Similarly, construction sector too is growing merely by 3.3% The numbers shows that these sectors need immediate fiscal policy intervention.

Expectation 3 : A Concrete Plan For Disinvestments

Government should present a concrete plan of disinvestments from various government owned entities. This topic had been discussed widely in all the past budgets but we have rarely seen any time bound concrete plan and action. This time government already had heavy hit on collections by reducing corporate tax to 22% so a concrete disinvestment plan can be a good alternative

To Sum up, 

Ultimately we can only speculate on the various reforms the government may roll out this budget. The expectations are very high especially after the economic slowdown due to altered consumption pattern. Many more things would come to light and bring us more clarity when the economic survey is released.

Happy Investing!

Disclaimer: The views expressed in this post are that of the author and not those of Groww.

 

 

 

 

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