The finance minister should strike a delicate balance.

Creating a budget is both an enjoyable and difficult job. There are numerous needs from all sectors, particularly industry. Lower business tax rates are generally one of the most common proposals made to the finance minister. Sectors want lower indirect taxes to benefit them. Because GST has closed one source of demand, attention has shifted to customs. The inverted duty argument is gaining traction, but the problem is that the output of one industry can be used as input in another. Then some economists advocate for increased government CAPEX investment, although it is widely acknowledged that moving the economy forward will require private-sector leadership – Rs 5.5 lakh crore of central government spending cannot move a Rs 232 lakh crore economy. Then there are the voices of households who need tax breaks since they are the ones who are most affected by inflation.

These pressures, as well as the uncertainty about how the economy will behave, must be dealt with by the finance minister. Government revenue is determined by how the economy expands, and if people are unable to consume goods and services, GST receipts are likely to suffer. As a result, the assumption must be reasonable. There are numerous committed expenditures on the spending side, such as loan interest, employee pay, and ex-employee pensions. When you include in the food and fertilizer subsidies that must be provided, the government’s options are severely limited. This delicate balancing act must be carried out while keeping in mind that the budget deficit is the final statistic that analysts and rating agencies consider.

What can one reasonably expect from the budget in light of this context? The fiscal deficit ratio is the starting point because it is the crux of the calculations and also represents the amount of borrowing in the market. The deficit was set at 6.8% of GDP. However, depending on how disinvestment goes and how the additional Rs 3 lakh crore in spending materializes, it may be anything between 6.5 and 7.3 percent. The government has kept the borrowing program at Rs 12 lakh crore and would work to reduce it to avoid overpopulation in 2022-23 when private sector credit demand is expected to increase. As a result, a deficit of closer to 6% could be projected.

On the taxation front, the government has few options because the GST has set limits on what can be changed. In 2019, the corporate tax rate was reduced, and it is unlikely to be changed again. However, it would be timely to supply individuals with sops that, while minor, could be valuable. Individuals’ standard deductions might be increased to Rs 1 lakh, which would benefit the working class. Furthermore, because housing is a priority for the government, the government would likely increase the deductions for principal and interest on home loans. On each of them, an additional Rs 50,000 may be allowed. The maximum under Section 80C should preferably be increased by Rs 1 lakh to Rs 2.5 lakh to help save that are earning low returns on deposits and other fixed-income assets.

The announcements for the corporate sector are more likely to be in the area of the credit guarantee program, which can be extended for another six months and expanded to include more sectors, including the services sector — hotels, restaurants, malls, entertainment, and travel agencies — which is among the worst hit by the pandemic’s third wave.

The administration has already implemented some effective growth-promoting initiatives, such as the PLI scheme. As a result, the budget’s reform content may be limited. The goal should be to obtain more bang for your buck so that multiplier effects are greater while tax reductions are made where necessary.

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