The Modi-led government has taken several steps to stimulate growth since it assumed office. I believe this trend will continue in this year’s budget with the announcement of measures aimed at raising public spending and stimulating private investment. The finance minister will take further steps to effectively channelise domestic savings into investments.
I expect greater outlays for infrastructure projects which will not only enhance the standard of the country’s infrastructure but also provide large scale employment opportunities. Also, as private investment has an imperative role to play in enhancing economic growth, the government is likely to encourage private investment too. Financial inclusion has been a key focus area for the government and I expect further progress in this area.
The government seems keen on greater flow of savings into equities. I expect the finance minister to encourage equity investments, especially by first-time investors.
Past measures such as the Rajiv Gandhi Equity Savings Scheme have only met with limited success. The finance minister could come up with innovative alternatives though tax incentives on investments in equity-linked savings schemes are unlikely to be raised. Demands such as lowering of securities transaction tax (STT) or removal of dividend distribution tax might also remain unmet.
The government has been dwelling on social issues such as upliftment of the rural sector, mitigation of adverse weather effects on agriculture, creation of more employment opportunities and enriching the lives of women, children, senior citizens and people below the poverty line.
I believe the finance minister’s budget speech will cover all these issues. While he is also likely to touch upon burning economic issues such as the Goods and Services Tax (GST), I do not expect the government to meet its deadline of April 1, 2016 to roll out GST.
While increased social and infrastructure spending could threaten the achievement of the government’s fiscal deficit targets, a supportive factor is the continuously falling prices of global commodities — particularly crude oil.
As far as the more popular expectations relating to personal taxation are concerned, I expect the finance minister to disappoint. The widely anticipated enhancement of the minimum threshold for Income Tax may not materialise and personal tax rates are likely to be left unchanged.
Strained tax receipts given the general economic slowdown, implementation of the seventh pay commission, need to boost the rural economy after two years of subnormal monsoon and necessity of infrastructure and social investments place increased demands on the expenditure side.
As a result, there is little scope for relaxations on the revenue side. I do not expect significant concessions on the taxation front. In fact, there could be attempts to bolster tax revenues by expanding the base and raising service tax rates.
Also, the government could consider alternatives such as public sector disinvestments and spectrum sale to raise revenues.
I expect the thrust on ‘Make in India’ to continue. The encouragement to local manufacturing may, however, be more by discouraging cheap imports and minimizing red tape rather than by providing fiscal incentives.
Given the diverse expectations on the expenditure side and limited options to increase revenues, the fiscal deficit targets may have to be revised upwards. While that would be worth doing in the interest of wholesome growth and sustainable development, too much deviation from the fiscal consolidation path could cost the economy dear. It will be a tight rope walk for the finance minister.
Wisely planned social and infrastructure investments, possibility of a good monsoon following two consecutive years of subnormal rainfall and continuation of the benign global commodity price trend augur well for India. I believe the consequent revival in economic activity will further bolster India’s position as one of the fastest growing economies in the world.
The Author is Chairman and Managing Director, Motilal Oswal Financial Services Ltd.
