What to expect from Finance Minister Nirmala Sitharaman’s Union Budget Speech

Indian Union Budget 2021-22: This is going to be an exceptionally tough year for the finance minister. Not only is the economy in deep trouble and the finance minister has to spend a lot of money, she will have to convince rating agencies and the bond markets that the dramatic increase in expenditure that she does this year is actually is going to lead to a situation where over the next three to four years both the debt and the deficit levels will come down to more manageable levels. More important, while there is going to be a big rebound in FY22 thanks to the contraction in FY21 this is not going to sustain.

Keep in mind one big number that two big drivers of growth India’s exports and investment levels are down by about 12 percent of GDP over the last seven or eight years. So, for this finance minister Nirmala Sitharaman cannot depend on just increased government spending, she is going to require a lot more. There will be a lot of temptation as in the past to levy a fresh cess or a Covid tax that people are talking about. Some are even talking about a new kind of wealth tax in the share market especially for high net-worth individuals (HNIs). This will be a bad idea for several reasons.

One, the need right now is to increase expenditure and any increase in tax is just going to negate that. Secondly, the rich people have always managed to avoid paying taxes through all manner of shelters. Keep in mind that even demonetization could not actually get the rich to fork out that much more money. Thirdly, it will give the impression that tax rates are once again going to rise and this is going to be a confiscatory tax regime, so that’s a bad idea.

ALSO READ| Budget 2021 Income Tax Live Updates

There are five essential things that you should watch for in the Union Budget Speech to see whether this budget is really what India needs. First, there should be a dramatic increase in expenditure levels. There should be a 15-17 percent growth in expenditure over FY21.

Two, there should be a massive hike in privatization. Keep in mind, that even FY21 had a Rs 2 lakh crore plus target for privatization, but it would probably be about only Rs 25,000 crore or Rs 30,000 crore. There has to be not just a dramatic hike in privatization, but also a credible plan to achieve those targets. The third important point is that there must be no new cess or no new kind of tax.

The entire spending has to be met through an increased fiscal deficit, printing of money or whatever. It should not be done through an increased tax. There has to also be a big infrastructure push. The national infrastructure pipeline is something the finance minister has been talking about.

And finally, there needs to be a big 1991-style reforms push. Without that reforms push even the national infrastructure plan is going nowhere.