SANJAY THAPA JEET
With the GDP projected to grow at no more than 5 per cent for 20-21 –the lowest in last eleven years– and retail inflation having already climbed to a six year high FM Nirmala Sitaraman has a tight rope walk when presenting the budget.
Given the shortfall in revenue, India Inc expects the lowering of income tax rates, hiking of the IT exemption limit and reshuffling of the GST rates. It holds the enhanced disposable income would intern push consumption demand. But given the already a precipitous shortfall in tax revenues the lowering of income tax rates is may not come about. On the other hand the GST rates have already been trimmed down leaving little room for further compress. In fact the falling revenues from GST collections is a grim reminder of the fact that all is not well with the industry. Even as the fiscal deficit is feared to shoot to more than 4.5 per cent of the GDP this fiscal, there would be tremendous pressure on the FM on hiking government spending and kick off a demand growth in the economy to take on ”stagflation”.
In the current fiscal, for instance, the industrial production has contracted to 1.8 per cent for November on a year on year comparison. to add to this there has been an upsurge in inflation in recent weeks. For instance, consumer price inflation touched 7.35 per cent by December– highest in six years– particularly led by higher food prices. This has led to the undertones of ‘stagflation” in the economy. Credit off take has been dismal given the low manufacturing and capacity expansion. In fact the World Bank has squarely put its finger on the decreasing credit off take particularly from the non-banking finance sector to hit the growth in India in the coming years.
Though the government took a mid term measure of lowering of the corporate taxes — making it effective at 22 per cent for old companies and to 17 per cent for new companies as well as expanding credit growth through loan melas and merged several banks, yet the fact remains that the measures have not, in reality, helped in pushing up credit growth. In the first eight months of the current fiscal the revenue growth has slipped to Rs 9.82 trillion which is almost half of the targeted amount of the annual level. In another two to three months the no more than 10 per cent is expected with this, the balance of 40 per cent will remain unmatched for this fiscal. According to former CEA Arvind Subramanian, it would be a bad idea to either lower income-tax rates or raise goods and services tax (GST) rates. “.. there also is a thought that there was no scope for an expansionary fiscal policy by the government,” he stated.
