Budget in Focus

India budget focus: 5 key areas where government is focusing

Government to loose purse string to spur growth 

Union finance minister Nirmala Sitharaman will probably listen to the renowned British economist John Maynard Keynes while presenting her budget on Monday amidst Covid crisis.

In his famous prescription to overcome the Great Depression in the 1930s, Keynes highly advocated for government intervention through public spending because, he argued, private investments cannot be counted upon when there is deep recession and gloom around. According to him, only the government in this situation can revive demand, restore stability and confidence by intervention through spending.

The World Bank has recently commented that in India and elsewhere in the world Covid-19 has set in the worst recession post World War II.  

Amidst the pandemic and lockdown the consumer confidence has sunk to a new bottom as they became extra-cautious in spending, particularly on discretionary items. This resulted in the demand slump forcing industries, currently operating at 70%-75% capacity, to hold back their investment and expansion plans.

In this backdrop, the finance minister in December said that the forthcoming budget would be ‘once in a century’.

Let us see where may lie the focus of the budget.

‘Atma Nirbhar Bharat Abhiyan’

That the budget on Monday will lay emphasis on Atma Nirbhar Bharat Abhiyan following the several covid packages announced by the finance minister last year is a given.  

In Prime Minister’s vision of Atam Nirbhar the defence sector assumes a great significance, particularly in the aftermath of confrontational developments at borders with both Pakistan and China.   

The defence ministry has already chalked out 101 defence items the imports of which will be totally stopped by 2023-24 in view of producing them locally. In this endeavour, India has also signed agreements with Russia to manufacture AK-203 guns here in India. 

The finance minister is likey to hike budget allocation for the defence sector and announce sops to attract private investments in defence manufacturing.

Extension of the PLI scheme

With an eye to make India a manufacturing hub of the world, the Centre had announced a productivity linked incentive (PLI) scheme for the manufacturing sector last March. Following the initial successes in mobile, API and some medical devices manufacturing, the government is likely to extend the scheme for more sectors, including MSMEs. These sectors may include auto and auto ancillaries, textile, electronics, toys and so on. 

Special thrust on infrastructure

Undoubtedly, the budget will put special thrust on infrastructure development and investment. If India has to become a manufacturing hub of the world, world-class infrastructure is a pre-requisite. Besides, infrastructure such as roads, bridges, ports etc being a labour-intensive sector, a high budgetary allocation and investment is a judicious way to create employment and consumer demand.

Apart from this, infrastructure development will also entail higher demand for cement and steel and thereby creating secondary investment and employment in cement and steel sectors.

In this regard, the budget may propose some sops to housing and real estate which are also labour-intensive and have potential to create secondary demand in other sectors such as cement, steel, paints, consumer durables, tiles, consumer electrical goods, etc.

Focus on health sector

Covid-19 pandemic has brought to the fore the lacunae in our health sector. There are only 5 hospital beds and 8.6 doctors per 1000 persons in the country. The Economic Survey, tabled in Parliament on Friday, also underscores the importance of increasing the budgetary allocation for the health sector to 2.5%-3% of GDP which itself can add 2.4 percentage points to the economy’s growth rate.

The budget may propose fiscal incentives in terms of tax concessions for setting up hospitals and health centers in smaller towns and rural areas. Research and development of ‘novel molecules’ of drug, rather than manufacturing of generic drugs, may also get a fiscal boost in order to reduce our dependence on Chinese imports in drug manufacturing.

Steps to revive consumer demand 

The Covid relief packages that the finance minister announced last year mostly aimed at addressing the supply side disruptions caused by the pandemic and imposition of lockdown. There were few measures to stem consumer demand. Now that the mass vaccination process has started, the budget may look at providing money in the hands of end consumers to spend. The finance minister can do this by tweaking the new personal income tax structure announced last year.

The finance minister is likely to stay course with direct tax reforms initiated in the later half of 2018, wherein corporates were allowed to pay tax at lower rates provided they don’t claim any deduction. Similarly, an alternative tax structure devoid of deductions was proposed last year for personal income taxpayers.

Whatever measure is announced in the budget for the revival of consumer demand, consumer goods manufacturing companies stand to gain.  

Whatever revival in consumer demand we have seen since the process of unlock down began, a large part of that can be ascribed to the rural sector. While the agriculture sector witnessed a 3.4% growth, lakhs and lakhs of jobs and livelihood were lost in urban areas. Now is the time to revv up consumer demand in the urban sector.

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Parichoy Gupta

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