Cross Your Fingers For Budget Thrust To Sops, Reforms

Cross Your Fingers For Budget Thrust To Sops, Reforms
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Highlights

On February 1 morning, the entire nation’s attention will be riveted on the Budget speech of Finance Minister Nirmala Sitharaman – the first of the...

On February 1 morning, the entire nation’s attention will be riveted on the Budget speech of Finance Minister Nirmala Sitharaman – the first of the Modi government 3.0. There is a palpable sense of expectations which have built up over the past few weeks. Vexed by drying up of employment opportunities, unrelenting inflation, particularly of food prices, and stagnant wages for long, millions of poor and middle class families are eagerly looking for a budget empathetic to their conditions – to help them live better and save for rainy days. They will be all ears to hear good tidings in form of rise in the limits of standard deduction.

Analyst after analyst have said of how people, especially of middle and lower classes, are thinking twice before spending, exercising greater discretion in view of the rising costs of living. Subdued performance of FMCG sector in single digits and curbs on pricing reflect this, they say, calling for the Modi government to boost private consumption – for it accounts for over 60 per cent of the GDP. Raising Income Tax exemption limit to Rs 5 lakh is strongly hoped for. Also, increasing deduction limit for National Pension Scheme will help raise subscriber base as well as pensioners can benefit more. There is no level playing field at present among tax saving schemes. Addressing these besides reducing tenure of tax saving deposits will help well. Middle-class people also have tax compliance concerns; as such, easing tax complexity will expand tax base. A key worry for them is the easy route often resorted to by FMs by way of indirect taxes, which disproportionately impact lower-income groups. Favourable policies also spur long-term and short-term capital gains investments in bonds, stocks, mutual funds or real estate.

In the same refrain, economists, business and industry segments are also pinning hopes on a budget that will stimulate consumption. Reasons are obvious, the last GDP figures have pointed to slowing of economy growth (5.4% in Q2 as against RBI’s projection of 6.8%) – the lowest in recent months. RBI even pruned annual estimates to 6.6% from the earlier 7%.

Economy owes its resilience to robust consumption by masses, which is surprisingly more in rural areas due to good agri outputs. Higher allocation rural allocations as in MGNREGA spurred rural spend which is hoped to boost higher growth in the second half of FY25. As such, growing middle-class wealth, which in turn leads to more consumption, is crucial to sustain growth in consumption of goods and services in both rural and urban areas.

Amidst inching up core inflation and modest growth, RBI may keep from easing interest rates, and consumers may not be inclined to loosen their purse strings. Add to this global trade and tariff dynamics in a Trump 2.0 era, the industry is as interested as the consumers for budget stimulants for higher consumer spending.

Alongside, the government needs to accelerate capex spending (accounts for 28% of India’s GDP) committed in the 2024-25 Budget – and also address persistent inflation, mainly supply chain side of food inflation. With a festival season and weather disruptions (excessive rainfall) behind, now the focus is on the central government to push for employment generation, and put more money in the hands of households.

It is hoped Sitharaman would announce rollout of key reforms in taxation, labour, land and customs, allot higher funds for R&D, and derive best out of the China Plus One strategy of the West looking for markets to diversify their manufacturing and sourcing operations beyond China. This would help the RBI follow up with monetary easing through liquidity, lower rates, and relaxation of macro-prudential measures.

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