Amid high expectations from the common man and corporate India, the maiden budget of Prime Minister Narendra Modi's government on Thursday is expected to extend tax relief to the salaried class and unveil steps to spur investment and growth, even as fiscal situation remains fragile amid deepening Iraq crisis and high inflation.
After four years of slow growth, the promises made by Modi in his winning, high-profile campaign in the run-up to the parliamentary elections, in areas such as jobs creation, curbing price rise and reviving growth have rekindled hope that effective measures will be taken to put the Indian economy back on rails, experts and stake-holders said.
They looked upon the national budget, to be presented by Finance Minister Arun Jaitley in parliament, as the first major package of policy pronouncements that will give some direction on how the government intends to balance the needs of economic growth and fiscal prudence, while bringing inflation and keeping it under control.
“High expectations surround the maiden budget of the new government. People expect the budget to support growth, be anti-inflationary and committed to fiscal consolidation,” said Richard Rekhy, chief executive officer, KPMG in India.
“However, it would be a challenge for the finance minister to fulfill the wishes of all stakeholders and he may have to take bold decisions to bring the sluggish economy back on track,” Rekhy said.
Jaitley recently said the government would not indulge in “mindless populism” and that bold decisions will be taken to revive growth, while following the path of fiscal prudence.
The government is widely expected to enhance the basic exemption limit on personal taxation to Rs.300,000 from the current Rs.200,000 lakh to provide relief to common man, especially the middle class, which has been severely affected by persistent rise in prices. Limit of deductions allowed for some expenditure and investments made in pensions and life insurance is also likely to be increased.
Jaitley is also expected to announce a slew of measures and tax incentives to revive investments and industrial growth. He has already extended by six months the excise duty concessions for automobile and consumer durable sectors.
Chief executive officer and managing director of Max Life Insurance Rajesh Sud said the need was to put an effective growth plan in place that will be able to tackle the burgeoning fiscal deficit, tame inflation, maintain a trade deficit level that can be financed by capital inflows and, most importantly, revive industry’s confidence.
The net message of all the policy decisions has to be a clear. “India is open to business. It subscribes to transparent dealings. It is anti corruption and wants to improve the lives of all its citizens. But it also understands it will require to do different things for different segments and is committed to this happening steadily through a period of time,” Sud said.
Analysts said the government is likely to announce a definitive road map for implementating the much delayed indirect tax reform, Goods and Services Tax (GST), that will set the tone of economic reforms.
According to a survey conducted by industry body FICCI, India Inc. expects the Budget to be pro-growth giving due focus on ironing out issues faced by the industry and investors.
Doing away with retrospective taxation and implementing Goods and Services Tax (GST) and Direct Taxes Code (DTC) as soon as possible are high on the wish list of most in the corporate world.
Jaitley is also likely to announce a price stabilisation fund, as promised in the Bharatiya Janata Party’s (BJP) election manifesto, as well as incentives to boost affordable housing.
President and chief executive officer of GE South Asia Banmali Agrawala said efforts should be made to address the problem of inflation through easing supply side bottlenecks, instead of focusing just on demand side and increasing interest rates.
Agrawala also suggested the need for “exercising fiscal prudence, controlling subsidies and creating room to fund increased government spending in building infrastructure”.
The budget comes at a time when the country is passing through a very difficult macro-economic situation. The economy is suffering from its worst slowdown in three decades, inflation remains stubbornly high and the fiscal situation fragile.
Jaitley is widely expected to revise fiscal deficit target upward from 4.1 percent of the GDP, as set by his predecessor P. Chidambaram.
In the first two months of 2014-15, fiscal deficit, which is a measure of the government’s spending beyond its means, hit 45.6 percent of the budgeted amount for the entire year. A sharp jump in oil prices in international markets due to Iraq unrest will put further pressure on subsidies bills.
The finance minister is likely to keep a higher target of revenue from asset sales that would help bridge financing gap. (IANS)