The Union Budget for financial year 2021 - 2022 will be unveiled by Finance Minister Nirmala Sitharaman in Parliament on February 1. Sitharaman has already set the tone by calling it a "budget like never before."
A lot of expectations have been built up ahead of this year's budget with all eyes on the finance minister. India is currently in a technical recession as it reels from the pain of the nationwide lockdown imposed in March 2020 to combat COVID-19 pandemic; a once in a generation health crisis that has currently wrecked the global economy.
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The Indian economy in the first quarter of the current fiscal year shrank by a gargantuan 23.9%, followed by a better-than-expected contraction measuring 7.5%. According to the government's own estimates released in the Economic Survey (and in the revised estimates before that), the economy will get smaller to the tune of 7.7%. Health is paramount too, as India steers the world's largest vaccination drive which started on January 16, and still has 1,69,824 active cases of COVID-19.
Public finances are of concern too as the Centre and states have resorted to market borrowing to firefight the fallout of the pandemic. The Economic Survey states that the central government has borrowed ₹10.72 lakh crores this FY (as of January 8, 2021) - a sum 65% higher than the corresponding period in FY2019 - 2020. The amount for the states is 41% higher than the corresponding period too; their borrowings amounting to ₹5.71 lakh crore.
The Economic Survey predicts a V-shaped recovery, and GST collections - at ₹1.15 lakh crore in December 2020 - are buoyant too. Next year, the economy is slated to grow 11%, but from a much lower base.
So here are five things we can expect from Nirmala Sitharaman's Budget on February 1.
1. Higher tax exemption
A report in the Economic Times two weeks ago has quoted sources and said that the government would be raising the exemption slab - from the current ₹2.5 lakh - to ₹5 lakh.
Currently, however, until ₹5 lakh, a rebate up to ₹12,500 is provided, therefore those with taxable income up to ₹5 lakh would end up paying no income tax. With this exemption increase, nothing would change, but the government would forego revenue on higher taxpayers.
The government is doing so to revive consumption in the economy, according to the report.
2. A COVID cess
Tax payers from the higher slabs would have to shell out more as the government plans on levying a COVID cess to shore up its finances. While a report in the Economic Times does say it would be a surcharge on higher income earners, it does not contain any details.
In addition, there would be a levy on fuel.
The benefit of such a surcharge is that it is not supposed to be shared with the states.
3. Big bang disinvestment
Reuters has said, relying on two sources within the government that India's largest insurer - Life Insurance Corporation - will see the government's stake in it diminish by 10% to 15% through a sale.
In last year's budget, Sitharaman announced plans for an initial public offering for LIC, which some reports last March said is valued at anything between ₹9.9 lakh crores to ₹11.5 lakh crores.
Along with LIC, the intention of putting up bank stakes in institutions like IDBI Bank, Central Bank of India and Punjab and Sindh Bank has also been mentioned.
This would be part of an overall focus on privatisation of PSUs, according to some reports.
4. A vehicular scrappage policy
The new scrappage policy has been talked about for some time, and CNBC TV 18 has said that it may be unveiled in the budget, pending finalisation from the Finance Ministry and the Prime Minister's Office.
The scrappage policy would regulate how old and obsolete cars would be taken off Indian roads. Union Minister Nitin Gadkari was previously quoted saying that vehicular recycling plants would be set up near ports. This would provide cheaper recycled material and make Indian car exports internationally competitive.
5. Increase in custom duties
In pursuing its goals towards an 'Aatmanirbhar' (self-reliant India), the government may hike import duties on certain sections of finished goods and electronics, but may reduce it on raw materials.
A report authored by the Press Trust of India has said that tariffs may be tweaked on a variety of products. Refrigerators, washing machines and dryers would be among the items becoming dearer, while raw materials going into the manufacturing of furniture could become cheaper.