Finance Minister Nirmala Sitharaman has the unenviable task of pulling out a rabbit from the hat to jumpstart the Indian economy back on the high growth path. Some people are saying that it is going to be the toughest budget for Finance Minister Nirmala Sitaraman to present with GDP growth slowing down to 5%, the lowest in 11 years, investments growing at 1%…the slowest in 17 years and a likely fall in direct tax collections from last year, for the first time in 2 decades.
1. Cut in Income Tax Rates
After the government cut corporate tax rates to 22% from 30% for existing companies and from 25% to 15% for new companies, there were calls for a cut in income tax rates to give a demand-side push to growth. But given the falling tax collections can the government afford income tax cuts? Already a slippage of half a percent in the fiscal deficit this year to 3.8% is being penciled in by many economists. But where is the money for spending? Could it come from disinvestment? So far this year the govt’s only raised 18,000 crore vs its target for 1 lakh crore through divestment.
2. Welfare spending cut back?
With its back against the wall, will the govt have to cut back social sector spending? Can BJP led govt afford to do this with state election setbacks it has recently suffered?
In a bid to ease the liquidity squeeze, the government had asked for govt departments to clear all GST dues to SMEs, MSMEs. How has this fared? Bank credit growth has slumped to 7% in 2019. Will the govt announce further easing of credit for smaller companies?
There are expectations that there may be cut in dividend distribution tax on shares and abolition of Long Term Capital Gains tax which had spooked the market 2 years ago, to boost savings and investment in the capital market. Everybody is expecting the FM to hit a boundary out of the stadium with this budget to revive the economy. We will wait till Feb 1 to see the score.