Economy

Budget expectations: Reviving growth, the key challenge

Shishir Sinha New Delhi | Updated on June 26, 2019 Published on June 24, 2019

A falling GDP, low demand and rising unemployment make any economic revival a daunting task

The first and the foremost challenge for the new Finance Minister Nirmala Sitharaman, as she gets ready to present her first Budget on July 5, will be to bring the economy back on track. A slowdown in growth rate, rising inflation, low investment and consumption and questions over job creation are major hurdles the economy is currently facing.

 

It is widely expected that the Finance Minister will continue with the provisions of the Interim Budget with a few changes. Some expenditure on account of expansion of the PM Kisan and pension schemes (for farmers and traders) will increase as these have been approved by the Cabinet and allocation has to be made in this Budget. Also, allocation for these will fulfil the key poll promises made in the BJP.

Income-tax slab

But the big question is will Sitharaman tweak the income tax slab to provide more money in the hands of the people? Since demand is low and people have less disposable income on hand, a change in slab will not only change this situation but also result in prompting industry to raise production.

The expectation is that Sitharaman might raise the personal income tax exemption limit to ₹3 lakh from ₹2.5 lakh which will help nearly 7 crore tax payers. There are arguments for and against this. Though the higher exemption limit will cost the exchequer dear, it will on the other hand put more money in the hands of people which means more expenditure and in turn bring more money back to the Government kitty by way of indirect taxation.

Also read: Budget expectations: Farm distress, financial sector woes need special focus

It may be interesting to note that then Finance Minister Arun Jaitley in his first Budget hadraised the personal income-tax exemption limit by ₹50,000, that is from ₹2 lakh to ₹2.5 lakh in the case of individual taxpayers, below the age of 60 years. Exemption limit was raised from ₹2.5 lakh to ₹3 lakh in the case of senior citizens. Also, investment limit under Section 80C of the Income-tax Act was raised from ₹1 lakh to ₹1.5 lakh. Deduction limit on account of interest on loan in respect of self-occupied house property was raised from ₹1.5 lakh to ₹2 lakh. All these brought more money into the system and in turn helped improved demand.

Tax collection

The full Budget might set a new target for direct taxes comprising personal income tax and corporate tax. The Government revised the direct tax collection target to ₹12 lakh crore for 2018-19, from ₹11.50 lakh crore earlier but the actual collection was just ₹11.37 lakh crore. This means, if the Government sticks to the Budget Estimate for 2019-20, it will require a growth rate of about 20 per cent (exclusive of STT). It may not be realistic which means the estimate needs to be revised and there could be new number for direct tax collections in the full Budget.

There is also pressure on the Finance Minister to lower the corporate tax for remaining one per cent of the assessees i.e. big companies. Such a move will definitely encourage investment. There is also demand for reviewing the long-term capital gain tax (LTCG) and dividend distribution tax (DDT) which are unlikley to be taken up.

Published on June 24, 2019

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