With last quarter of FY 2020 battered with the supply-side shock due to COVID-19 and the first three quarters of FY 2020 being stressed due to both, the supply and the demand side shocks, thanks to the Covid induced lockdowns, Budget 2021 will be one of the most important and discussed India budget. Experts and the general population, both are expecting the government to take actions along with the sectors like Healthcare, Infrastructure, welfare and incentive to industries and individuals for investment and growth. Before looking into the expectations and speculations for the new budget, let's look at the major highlights of the Union Budget 2020.
The Union Budget of 2020 was the first full budget of NDA 2.0 government, and with a massive mandate that the ruling coalition gained in the general election 2019, many big bang reforms were expected from the government, and depending upon whom you ask, the ₹ 30 lakh crore budget was either well-balanced or poorly drafted. Some of the major highlights of the same were:
As expected, the proportion of revenue from corporate tax went down, due to the lower corporate taxes announced in H2 of 2020. The proportion of GST collection was also lower than the previous year, which is expected to happen this year as well. This has led to the Central government defaulting on the promise of compensating the states for the shortfall in GST collection. In addition to that, the government’s liabilities on pension and subsidies have been increasing, the Finance Minister will have to keep an eye on that.
Now, as conspicuous as it may be, it is important to reiterate that just a few weeks after the budget was announced, COVID-19 and the lockdowns struck and then the government had to make fresh allotments for MGNREGA, plans of Krishi Rail and Krishi Udaan halted, more distribution of food grains was made and earnings of a significant proportion of the population was jeopardized and only a few companies declared dividends. On top of that, fresh direct cash transfer stressed healthcare sector and extra expenditure on welfare schemes, the Fiscal Deficit of the country went up to ₹ 9.14 lakh crore, of about 115% of the annual target for the financial year 2021. Add to that the expected GDP contraction of around 8-9% in addition to far lower than earlier expected GST collection has put the government is a very tight spot of balancing fiscal prudence with providing impetus to growth and employment. Also, the government is staring at increased bills of welfare program, the cost of COVID-19 vaccination and higher expenditure on infrastructure and health.
Given such precarious state of affairs, everyone in the country, individuals and businesses have their own set of expectations from the government in the upcoming budget. Following some of the expectations and speculations:
Nevertheless, with improving economic activities, and lower cases of COVID-19 and the possible advent of vaccination in the country in early 2021, we would be keeping a watch on the development leading up to the budget and the budget itself with hopeful enthusiasm.