Why has the Union Budget regained its lost glory this time?

KS Badri Narayanan Chennai | Updated on January 25, 2020

There’s exactly one week to go for the first full-year Budget of the Narendra Modi government in its second term. Union Budgets have long lost their importance in India with a number of off-Budget announcements being made by successive governments during their tenures and more so after the introduction of GST which has transferred the powers on indirect taxation to the GST Council.

However, this time around the Budget seems to have regained its lost glory with market watchers’ higher expectations in all respects, as the economy is surfing on weak waves. The Prime Minister’s ongoing meetings with corporates have also heightened expectations from the Budget.

There is unanimous agreement on one thing from economists to the common man: improve private consumption to boost the economy. Anticipation has been building up for a sizeable tweak in personal income tax slabs to revive consumption. Speculation is rife that the 5 per cent income tax slab may be lifted to the ₹2.5-7 lakh band from the current ₹2.5-5 lakh. For the income bracket from ₹7-10 lakh, the new tax rate is expected to be 10 per cent. For earners between ₹10-20 lakh, it could be 20 per cent.

Another sector that expects huge giveaways from the Budget is the equity market. Marketmen expect the exemption of listed shares from long-term capital gains tax (LTCG); rolling back of securities transaction tax (STT) or reintroduction of tax rebate under Section 88E to avoid double taxation and per trade transaction (if LTCG continues); and withdrawal of dividend distribution tax (DDT).

Of course, this time too, there are high expectations for the agriculture sector despite the good monsoon. Industry players expect additional incentives to farmers, especially those producing oilseeds reaching out to farmers through better implementation of DBT for fertilisers, increased allocation for PM-Kisan scheme (currently ₹6,000/farmer), and higher budgetary allocations for fertiliser subsidy.

The automobile sector which is facing a severe downturn, is also betting on the Budget for a booster dose. It is hopeful of announcements on scrappage policy of old vehicles to reignite demand. The expectation is that there could be some kind of incentives to customers for voluntary scrappage.

NBFCs & refinancing

With the NBFC sector facing a liquidity crunch, there is demand to include them into refinancing of SMEs to improve fund flow to the MSME sector. There is also a demand for setting up of a refinance window for NBFCs on the lines of National Housing Bank to HFCs.

But the most important focus area would be the fiscal math, especially for global rating agencies. With the government in a weak financial position, how it will generate funds to lift downbeat industries even while funding their ambitious programmes is a moot point.

The government is expected to report a minimum fiscal deficit of 3.6 per cent for FY2020 as it is trying to balance economic growth priorities with social objectives. Global rating agencies could revise their opinions on India on any further slippage in fiscal deficit. Recently, S&P Global has reaffirmed India’s sovereign rating at BBB- with stable outlook while Moody’s Investors Service cut India’s credit rating outlook to negative, citing prolonged slowdown in the economy.

Any further downgrade could trigger a flight of capital from India, that could make the stock-market investors’ life a more difficult one.

Published on January 25, 2020

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