There was a time, not many years ago, when predicting Budget outcomes was a common trade in news media. Many such ‘exclusives’, by select outlets, used to come true. Such privileges were over with the arrival of Narendra Modi and budget predictions were replaced by guesses.
Examples of such guesswork are widely available in the media. The most prominent of them is an expected boost to consumption either through income tax exemptions or some other method. Some prefer to connect it to the ensuing election season; some others see it from the perspective of boosting the post-Covid economic recovery.
Hurdles for consumption boost
The proponents of this theory are pinning hopes on a strong recovery in GST collection. What is forgotten though is that both the centre and the states have already used a part of the perceived ‘gain’ in GST collection in reducing duty burden on petrol and diesel (which are outside the GST framework).
Considering the low base of income taxpayers, any exemption on this font will have limited gains in terms of consumption boost. It will make the salaried class happy without bringing any solution whatsoever to the post-pandemic financial stress of the lower-middle class.
Broad-basing GST framework (through the inclusion of energy products and commodities) and simplification of rates is a long-standing demand and can be a good impetus. However, any such decision should be taken at the GST Council and not in the Budget.
Meanwhile, the existing five-year GST compensation window, granted to states in 2017, will end in June 2022 and demand is already rife to extend the facility. A decision in this regard will involve serious bargaining and it is to be seen if the Budget leaves any indication to that.
To put it straight, there is a limited fiscal window available to splurge at this juncture. Moreover, considering the inflationary pressure, and the Modi government’s sustained focus on ensuring fiscal balance, it is questionable to what extent expectations of consumption boost will be fulfilled.
That the primary triggers of this inflation are global - as is evident in high sea-freight and boom in energy prices – making the situation even more complex. The coal market is already hit by export restrictions by Indonesia. Growing tension in Europe over Ukraine may impact the gas market in a big way.
India has done well on the economic recovery front so far. However, the worries are far from over. A small global disruption (like constraint in the supply of energy commodities) may send the government into fire fighting mode. The need of the hour is to be ready with a war chest.
Far from the discussion on incentives or sops; the government, therefore, is actually in need of garnering more resources.
Apart from contingency planning and provision of incentives (like production-linked incentive or PLI) for the manufacturing sector; greater fund flow will help boost government spending in infrastructure building which will address issues in the employment and income generation front.
Time-bound implementation of infrastructure projects is a strong point of the Modi government. To ensure fund flow, the government, in September, announced a huge pipeline of Rs 6 lakh crore worth of assets to be monetised. This was over and above the disinvestment and/or privatisation targets.
Asset monetisation has been in discussion since the last Budget. There has been some progress in this direction too, as is evident in the launch of a series of InvITs (Infrastructure investment trusts).
However, things are yet to gain the desired momentum vis-à-vis promises and this Budget may see the government getting into fine-tuning of rules and regulations to give a stronger push to asset monetisation.
Disinvestment is always a tricky issue and needs both time and patience. India didn’t see any privatisation after the Atal Bihari Vajpayee rule. Stake dilution in public sector units was also largely subscribed by public sector units, especially the insurance companies.
The process resumed with the privatisation of Air India and Central Electronics Ltd (CEL) during October-November. CEL is a small outfit. Air India was the biggest newsmaker. Unfortunately, both the sales are yet to be implemented.
The government has already extended the deadline to hand over the airline to Tata Group from December 31 to January 31. It is to be seen if the process is complete before the Finance Minister rises to present the Budget. Further delay may impact the sentiments.
Tweaking of rules
The practical assessment suggests that the Budget is unlikely to come out with earthshaking announcements. The government has already made all big-ticket announcements. It is time to implement them.
With the next Lok Sabha election due in another two years; the government has to take the majority of the potentially politically unpleasant decisions (like disinvestment and asset monetisation) in this year itself. The Budget may, therefore, see the government clearing grounds through tweaking of a whole set of rules and regulations.
The necessity of such tweaking of rules is also felt in clearing ground for private investment in a host of areas. In logistics, for example, the Budget may pave the way for the creation of mechanised vertical stockyards which might add speed to e-commerce.
A lot of initiatives have been undertaken over the last seven years to convert India into an investment destination. Bold policymaking during the pandemic has added wings to the process. The framework is ready. It is now time for India to focus on more ground-level changes to suit market needs.
Ideally, the Budget should focus on that.
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