Broad contours of the Budget that you can safely envisage

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The Union Budget for FY22 will be presented on February 1 at a time when the economy is still battling with the pandemic-induced economic crisis. The Indian economy contracted 23.9 per cent in Q1 of FY21, and 7.3 per cent in the second quarter.

With the contraction in successive two quarters, the economy entered a technical recession. Though the government announced various stimulus packages last year, a lot more is expected from the forthcoming Budget. Green shoots are visible in the economy, but it is too early to say that the economy has completely entered a recovery path. The limitation on RBI’s side in offering further monetary stimulus also builds pressure on the Budget.

The health sector would be a focus area in Budget 2021. The Covid-19 pandemic highlighted the urgency to step up the health infrastructure. In India, health spending as a percentage of GDP is still on the lower side and calls for an increase in allocation. The total cost for the Covid vaccination programme would be also reflected in the Budget.

The infrastructure sector would be another area of thrust. The emphasis would be on the National Infrastructure Pipeline (NIP), which needs to be completed by 2025. Under the NIP, central and state governments would have equal share whereas the private sector would contribute 22 per cent of project costs.

The fiscal health of states is weak, and there will be paucity of funds at their end to implement big infrastructure projects. Similarly, in the current economic scenario, private sector spending will be limited. In such a scenario, the Central government would be taking the lead, and one could expect a big infrastructure push in the Budget. More infrastructure spending will help employment generation and also in improving the business climate.

The Finance Minister is also likely to announce some incentives for the manufacturing sector, especially for the MSMEs. To boost domestic manufacturing and attract foreign players, the government has already announced the production-linked incentives (PLI). One would expect a hike in import duties for several items as a means to support the Atmanirbhar Bharat Abhiyan, though, such an act won’t do good to the economy in the long run.

On the revenue side, no major tax change is expected. As the fiscal position of the government remains weak, there is limited space for the government to tweak the income-tax rates. But there are talks that the government might introduce a Covid cess this year, which, if implemented, could further dampen economic activities.

On disinvestment, the Finance Minister might stick to the target of Rs 2.1 lakh crore for FY22 also, as the realisation for the current financial year would be less than 20 per cent of that target. There should be a clear roadmap for disinvestment, as it can bring relief to the exchequer.

GST collection crossed the Rs 1 lakh crore mark for three consecutive months. There could be some surprise in fiscal deficit figures (as a per cent of GDP) for FY21, which was projected to be above 7 per cent. And, for FY22 the fiscal deficit target is expected to be in the 4.5-5 per cent range.

Article first published in Economic Times.

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