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'Budget 2020 crucial for realising $5 trillion economy dream'


Date: 21-01-2020
Subject: 'Budget 2020 crucial for realising $5 trillion economy dream'
Rahul Jain

Finance Minister Nirmala Sitharaman will present her second Union Budget on February 1 and a lot is at stake.

The Budget comes at a time when the Indian economy is battling a severe slowdown, with economic growth hitting a six-year low of 4.5 percent in the July-September quarter.

While the slowing down of the economy is a matter of concern, the government can take solace from the fact that the markets have remained buoyant.

The BSE Sensex crossed the 42,000 mark for the first time on January 16, 2020, while the Nifty too scaled lifetime peak of 12,389.

Budget 2020 is a perfect opportunity to unveil a blueprint of achieving a $5 trillion economy by 2024.

Driving consumption by making tax slabs more progressive:

One of the primary reasons for the muted economic growth has been the slowdown in consumption. The common man has found it difficult to have enough investible surplus to spend and spur consumption in the process.

The government should make provisions whereby people are left with enough in their kitty to spend and fillip the growth of key industries like automobiles and real estate.

To do this, changes are needed in the personal income tax slabs. Recently, we have noticed a rationalisation of the Goods and Services Tax (GST), with a significant reduction in corporate tax.

While these measures are aimed to arrest the slide of a faltering economy, it’s equally important to give more spendable income to individual taxpayers by rejigging the tax slabs.

The last change in the income threshold limit for taxpayers was way back in 2014, when the present government presented its first Budget.

Since then, there haven’t been any major changes in this limit, barring some sops, given in the years that followed.

On the contrary, the highest tax rate applicable was raised to 42.74 percent last year in July, when the Modi government presented its full-fledged Budget after getting re-elected.

The jump in the tax rate of nearly 7 percent, from the erstwhile 35 percent, has hurt the country’s super-rich. It would be great if the tax-slabs are made more progressive, giving benefits to the salaried class.

Reconsidering LTCG Tax on capital gains on equities:

Ever since long-term capital gains tax of 10 percent without indexation on profits made above Rs 1 lakh on the selling of equity shares and mutual funds were introduced in Union Budget 2018, the same has not gone down well with industry stakeholders. To infuse capital in the economy and boost investments, Budget 2020 should reconsider this provision.

There could be two options - either to completely withdraw the LTCG tax or increase the threshold limit. Opting for either of these would revive not only sentiments of domestic investors but also foreign institutional investors (FII).

It must be noted that FII pumped in more than Rs 1 lakh crore in domestic stocks last year, making it the best infusion in the past six years. Any measure to ease the LTCG burden can go a long way in driving the growth of the domestic equity market.

Easing credit liquidity for NBFCs:

The crisis that started with the IL&FS blowout in late 2018 followed by downgrades of securities by credit rating agencies credited a liquidity crisis for non-banking financial companies (NBFCs).

While the government stepped up in to ease the pressure on the sector with its “Partial Credit Guarantee Scheme”, which allowed public sector banks to purchase high-rated pooled assets from NBFCs with sound financials, it would move in the right direction if more such policies are announced in the Budget.

NBFCs are the chief source of funding for small and medium enterprises (SMEs), the growth drivers of the country’s economy. With an estimated 42.5 million SMEs operating in the country, providing employment to 40% to India’s workforce, taking steps to ease credit liquidity for the sector can solve cash crunch for SMEs, thereby spurring economic growth and prosperity.

Striking the right balance between dreams and reality:
Given the current state of the economy coupled with challenges on domestic and international fronts, this is perhaps one of the most important Budgets for the government.

It must strike the right balance between hopes and reality to ensure it doesn’t overburden its exchequer, resulting in fiscal deficit blowing out-of-hand.

Contraction of gross revenue coupled with increasing expenditure has put pressure on the government’s coffers. And with fiscal deficit rising 114.8 percent of its target in the first eight months of the current fiscal, a further rise can hurt capital spending and bring down economic growth.

Source: moneycontrol.com

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