2 min read.Updated: 22 Jan 2021, 02:47 PM IST Edited By Avneet Kaur
One of the key expectations from Budget is to raise ₹50,000 limit for senior citizens interest income to ₹1 lakh under Section 80TTB, says Deepak Jasani of HDFC Securities.
By Deepak Jasani
The Finance Minsiter has raised expectations from the forthcoming Budget by planning a once in 100 years Budget. While Direct and Indirect taxes may not offer much scope to innovate or bring path breaking reforms (except those related to capital markets), the main focus could be on boosting manufacturing through schemes like PLI and to create jobs. We expect increased allocation for the social sector: MNREGA, education and health ministries. Spending by Consumers and Businesses (capex) could be given a boost to kickstart quick recovery.
To meet the covid vaccine related costs, the FM could introduce a “corona cess". Disinvestment target for next year is likely to be ambitious as certain planned disinvestment for FY21 spill-over into the next fiscal. This budget is important from the perspective of sovereign ratings.
We expect the fiscal deficit to rise to 7.6% of GDP in FY21. The combined fiscal deficit for FY21 (Centre + state) is likely to be 12.3% of GDP. For FY22, we expect Centre’s fiscal deficit target at 5.2% and states’ fiscal target at 4% with a combined deficit of 9.2%. Nominal GDP may be expected to rise 13-15% in FY22. To come back to fiscal correction path, the Govt has limited resources to boost spending by a large percent. A lot of reshuffling between expense heads may be undertaken so that needy sectors get funds while overall fiscal discipline is maintained.
PSU sector could be in focus by pushing them to perform in a market like manner. This could be done by giving their managers more freedom, linking their pay to performance and/or stock price movement, making targets based on RoE/RoCE etc. This will help improve their performance and lead to better realisation for the Govt upon divesting stakes in them.
Industries expect a roadmap for scrapping old vehicles, sops for electric vehicle industry and increased import tariffs to encourage domestic manufacturing. Government is expected to recapitalise PSU Banks to stimulate credit growth and offer fiscal support to Covid-hit sectors like hospitality.
In Direct taxes, the fact that a new tax regime has been introduced last year means that not many changes can be expected now. Even then key expectations include allow indexation while calculating LTCG on equity shares/equity MFs and/or allow set off of STT against the tax liability thereon, raise mediclaim insurance premium limit, reduce LTCG period to 1 year for Debt mutual funds, exempt dividend income in the hand of recipient to the extent of ₹2-3 lakh p.a., allow deduction for investment in Infra/Covid bonds, remove tax arbitrage between mutual funds and insurance in terms of switching, STT and capital gains, clarifying tax aspects on F&O trades, raise ₹50,000 limit for senior citizens interest income to ₹1 lakh under Sec 80TTB.
Markets will look forward to a credible borrowing plan in the Budget including raising of money internationally at lower yields. India’s public debt to GDP in FY21 will be upwards of 85% of GDP. India’s combined borrowing for FY21 is upward of 15% of GDP eating away the resources available, hindering the credit offtake and pass through of accommodative monetary policy given that the net domestic household savings rate is just 6.5%.
Key would be improving the sentiments of consumers/businessmen. Only if the Budget is path breaking in terms of policies (Govt spending, divestment, revenue raising or capital market friendly) the current upmove can sustain beyond a point.
(The author is Head Of Retail Research, HDFC Securities. Views expressed are his own.)
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