Pre-Union Budget 2021 Expectations: What The Budget Could Do To Start An Economic Recovery And Create Demand Across Key Sectors

Key Highlights

  • Businesses have seen the worst of times during the COVID-19 pandemic, so the Union Budget 2021 shall focus on economic recovery as its underlying theme
  • Now, while it is important to ensure that sectoral policies and industry revival is given due attention, but individual consumers need to be prioritized just as much in this year’s Budget
  • For individuals, the Budget shall focus on tax measures to increase disposable income and for industries, it shall look at policies which allow easier access to funds to businesses across key sectors which witnessed a difficult period
  • Demand generation via policies which are inclusive and holistic will hold key to a positive economic outlook for the future

For financial year 2020-21, there’s no debate that COVID-19 has played a significant role in impacting the economic scenario of the country. However, I won’t still go out on a limb and say that it has been a total spoilsport, considering the plans which were laid out in the Union Budget 2020 presentation. Having said that, we’re seeing signs of economic recovery and with the COVID vaccine (keeping aside its efficacy and side effects situation) now being administered, we’re certainly looking to be poised for normalcy in the future.

Talking in terms of how the economy is recovering, it’s evident it’s not as fast-paced as it was before the last Budget presentation (pre-COVID) but there has been noticeable growth in sectors like automobile, infrastructure, etc. Infrastructure has always been a priority of the Government and even with COVID-19 taking the steam out of a lot of sectors, infrastructure development has continued to remain a priority – and that is an appreciable aspect. I’m expecting the new financial year to bear some good news, and perhaps pre-COVID growth levels.

Bringing my expectations from the Union Budget 2021 to the fore – keeping industries as the context, I feel hospitality and real estate are two sectors which have bled through the times of the pandemic and it’s high time that the Government announces certain favorable policies for to ensure their revival. While there have been measures which were brought about to help the real estate industry, they practically came under the retail domain to boost sales but given the quantum of the changes and keeping the slowdown of the industry in mind, the changes weren’t as significant as one would’ve hoped and weren’t as holistic either (since they majorly revolved around certain tax-related changes and providing some banking relief).

So, I expect the Government to take a microscopic look at the issues that the industry is going through and accordingly come out with suitable provisions in Union Budget 2021, especially with regards to funding at an optimal interest rate, which I feel is the need of the hour.

The Possible Road To Economic Recovery – The Game To Generate Demand

If we look at retail demand (amongst individual consumers), I feel that has somehow been on a recovery road – considering the kind of measures taken by The Government in the banking sector, by providing easier financial routes to individuals to purchase housing properties, automobiles, or opt for a personal loan.

Despite that, we’re still not in a situation of key performing sectors witnessing a high demand. If I talk about a tier-II company which is a supplier to other big companies in a given industry, in that case – the demand hasn’t picked up across certain key sectors. Now, this could be attributed to the global economic slowdown (even though one might say that Indian economy hasn’t been adversely affected by the slowdown in the West). Here, the reason stems a little deeper because the fact that an economic slowdown in Europe/US implies India’s exports getting impacted, and therefore its effect being reflected in the country’s economic cycle.

Though the domestic demand may have started to show some recovery amongst individual consumers, the products getting exported might not have seen that sort of similar fortune. Therefore, some measures via the Union Budget 2021 should be aimed at helping exporters to help them sell their products either overseas (by tapping into and giving access to new markets) or even domestically. Another way to help would be to make changes regarding policies on logistics, which could certainly help exporters.

Tangible Measures Which Can Be Taken Via The Union Budget 2021 To Improve The Economic Scenario

When it comes to tangible measures to generate demand and improve consumption amongst individual consumers, tax-related measures via the Union Budget certainly come to mind. This goes back to the sentiment of increasing disposable income by giving tax relief to individuals, which would in turn give them more disposable income and this would potentially increase consumer spending. At the end of the day, we must understand the individual consumers play a significant role in the country’s economy (while I’m fully aware how important industrial consumers are, but it’s crucial not to undermine individual consumers and their demand).

Now, this takes us to one specific aspect – which in my opinion would mean the idea of doing away with tax on dividends. Now, last year, dividend distribution tax was abolished and the same was taxable in the hands of the individuals at their normal slab rate as applicable. Secondly, for individuals who earn an income of more than INR 5 Crore per year, their effective tax rate goes up to 42-43%, so bringing about certain changes in this area is definitely something that the Government should look at via Union Budget 2021.

As for industrial consumers, I’d maintain the stance that policies with regards to banking and providing companies with an easier access to funds to resume operations should definitely be a point of focus in this year’s Budget. One thing which I’d perhaps like to see specifically with regards to the hospitality sector would be certain changes in the GST regime pertaining to the same, considering the hospitality sector directly deals with individual consumers. So, measures to lower the tariffs and the end-cost of the services rendered in this sector by reducing GST rates surely can help the sector.

We’re seeing a bloodbath in the hospitality sector, and even aviation as well – a prime example would be the case of Jet Airways, so measures to make sure that such incidents aren’t a recurring aspect and the country can swiftly reel from COVID – we surely need some strong revival measures via Union Budget 2021.

If I were to summarize, I’d perhaps take a trip down the memory lane and go back to the 2019 Union Budget speech, where the Government had said that the Budget presentation that year would lay out a roadmap for the next 5 years. Keeping the current context in mind, those plans and that roadmap would surely require a revisit as the plans should now focus on economic recovery and industrial revival to make sure that individual consumers as well as industrial consumers can have a positive outlook towards the economy in the years that follow.

Please note: Views presented in the article are of the author and not of the firm.

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