Budget 2021 Updates: Demand recovery, investment boost, tax reliefs on India Inc's wish list
The need for fiscal support to lift the economy is paramount. Hence, GoI should relax fiscal consolidation for a year, and announce a realistic fiscal deficit target for FY2022, according to industry expert.
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India Inc expects infra boost from Budget 2021-22: Deloitte Survey
Of the 180 survey participants, 68% industry leaders said they were positive about India’s economic revival.
Respondents felt that focusing on the infrastructure sector with timely and adequate financing should be a priority area in this budget.
About 60% survey respondents cited that incentivising infrastructure investments will provide the desired impetus to the sector.
Budget 2021 should focus on three 'R's: Relief, recovery and reforms: V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services
FY22 Budget should prioritise tax reforms: Arvind Virmani, former Chief Economic Advisor
“The most important issue is tax reforms and the first element of that is the direct tax code. We cannot create a 21st century Atmanirbhar Bharat with these ancient codes and we need to bring it up to the 21st century,” Virmani said, virtually addressing a conference hosted by the Associated Chambers of Commerce and Industry of India (ASSOCHAM).
Read more at: https://economictimes.indiatimes.com/news/economy/policy/fy22-budget-should-prioritise-tax-reforms-arvind-virmani-former-chief-economic-advisor/articleshow/80406821.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
Film industry delegation meets Finance Minister Nirmala Sitharaman ahead of Union Budget
Representatives of India's top multiplex chains along with BJP MP Sunny Deol met Nirmala Sitharaman
They received an assurance that the government will certainly consider relief measures proposed by the industry
About 50% industry respondents feel Budget will revive their business, says Deloitte survey
Customary halwa ceremony to be held tomorrow ahead of Union Budget presentation
The customary halwa ceremony, which marks the process of printing documents for the Union Budget, will be hosted by the Finance Ministry on Saturday (tomorrow) ahead of the presentation of the Union Budget on February 1.
Budget FY22 should focus on resolving demand-side issues: India Ratings and Research
Budget should focus on boosting aggregate demand, expenditure reprioritisation and mobilising higher non-tax revenue
So far, the government's major focus to revive COVID-19 battered economy has been on the supply side
Tip for the FM: Help needy seniors with clear targeting. An extra 1% pa in specific schemes can be given to those who are not covered by pensions and do not have taxable incomes.
There are other safe avenues for investment, although the returns that one can get today are muted.
Five-year post-office term deposit offering 6.7%.
Kisan Vikas Patra offering 6.9%.
Post Office Monthly Income Scheme offers 6.6% annual returns, paid monthly.
Most Bank FDs offer about 6% or just over that, for seniors.
Corporate FDs from highly-rated corporates are offering about 0.5% more per annum.
Bank Bonds and good quality NCDs are also available in the secondary market, that can offer 6.5% to 8% pa interest.
Everyone has been put through the wringer during this pandemic. Specially senior citizens, who largely depend on income from rentals and interest on investments.
Another reason stock market could be a good idea for you? Coronavirus has complicated your post-retirement math
For India's silver generation, the pandemic could not have come at a worse time. The virus has only accelerated the interest rate cycle's journey southward. What may have looked like nest eggs, now seem grossly inadequate.
And what's in this for the government?
Depending on the ease of implementation of the scheme, this could create an additional pool of risk-capital of $1 trillion or more, focused on the capital markets, over the next decade or so driving growth in the economy.
What the scheme would mean for you: The only numbers you should focus on
Suppose an investor invests the full Rs 1.5 lakhs in this account, starting at the age of 25.
With an investment return of 12% CAGR, in 19 years, by the age of 44, she would have achieved a corpus of Rs 1 crore and by the age of 60, will be more than Rs 7 crore.
Even an Rs 50,000 investment annually, starting at age 25, could help an investor reach Rs 1 crore by age 53 and more than Rs 2 crores by age 60.a
Pradhan Mantri Atma Nirbhar Nagrik Yojana: The need of the hour
PMANNY would allow for a single designated bank account to be opened.
The annual limit of Rs 1.5 lakh of section 80C would be available under the scheme.
It would be even better if the Rs 1.5 lakh limit is increased annually based on the Cost of Inflation Index, published by the Income Tax department under section 48.
This could result in accelerated savings rates and much larger corpuses to be achieved in shorter time periods.
All dividends and gains from these investments would be tax-free.
The lock-in period of withdrawal from this account should be restricted for the first 7 years.
After 7 years, withdrawals in any given year, can be restricted to not more than 10% of the total corpus at that point of time.
The scheme is targeted to develop financial independence for Indian citizens.
It could be the perfect time for you to start investing the the stock market.
The Sensex has touched 50,000 from an initial value of 100 in 1979, i.e. 500 times over nearly 42 years, and Nifty is close to touching 15,000 from an initial value of 1,000 in 1995, i.e. 15 times over nearly 25 years.
This is a CAGR (cumulative annual growth rate) of, approximately, 18% for Sensex and 13.5% for Nifty, including dividends.
Tips for the FM: Relax fiscal consolidation for a year, and announce a realistic fiscal deficit target for FY2022.
Chandrajit Banerjee, Director-General, CII
Budget must focus on resolving demand-side issues: Ind-Ra
"It is high time to change gears and focus on the demand side as well, lest the ongoing recovery begins to lose steam. There is nothing wrong in addressing the supply-side issues, as it was necessary to restore/augment the broken supply chains. But, lack of adequate demand may jeopardise the recovery and may even lead to a second-round impact," Sunil Kumar Sinha of India Ratings warned in a note on Friday.
Increase in exemption limit for employer's contribution to provident fund
Employer's contributions to provident fund is currently exempt up to 12% of salary, where salary includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.
With the definition of wages set to widen and employer contributions to provident fund set to increase under the new Labour Codes, the exemption for employer contributions should be brought in line with the contributions required under the Labour Codes, i.e., 12% of the wages as definition of wages set to widen and employer contributions to provident fund set to increase under the new Labour Codes, the exemption for employer contributions should be brought in line with the contributions required under the Labour Codes, i.e., 12% of the wages as defined in the Labour codes.
The vaccination dilemma ahead of Budget
Kanika Jain, Assistant Professor, AIIMS, writes on the anvil of the 2021 Budget, the big question is how the country will fund this mammoth task. In my opinion, much will depend on whether India decides to vaccinate the entire population, or just the 70% needed to achieve herd immunity.
Another way could be to test the antibody levels of potential vaccine beneficiaries, with only people with zero antibodies being given priority.
Instead of providing the vaccine free of cost to the entire population, the government could consider giving the vaccine free of cost to certain sections of the society. The remaining should be given the option to purchase the vaccines from the open market at subsidised rates.
Rural demand is an important driver of overall consumption
Rural demand is an important driver of overall consumption that has taken a back seat during the pandemic. Along with a push to building infrastructure, a rural safety net like MGNREGA should ideally be one of the focus areas in the upcoming Budget.
Ensuring that people continue to get jobs under MGNREGA will go a long way in cementing the recovery process and ensuring that the economy returns quickly to the pre-Covid levels of output.
Centre needs to loosen its purse strings
The Centre will have to loosen its purse strings and push ahead with higher capital expenditure, especially with the projects that are already identified in the Rs 1-lakh crore National Infrastructure Pipeline, and where the plans are at an advanced stage.
“This will have a multiplier effect, and boost jobs and consumption,” ICRA’s Nayar said. Road and housing projects have a higher pass through as they are employment intensive and ensure the credit flow.
'Atmanirbhar Bharat Abhiyan'
The “Atmanirbhar Bharat Abhiyan” launched by the Prime Minister in 2020 echoes the sentiment to become global manufacturing hub and could be exactly what India needs to boost its manufacturing sector and help the country play a pivotal role in global supply chains in the near future.
Ease of Doing Business in 2021
Another area that needs consideration is a relook at some of the recent measures aimed at encouraging ease of doing business in India. The adoption of the Faceless Assessment program by Indian Customs under the Turant Customs framework showed great promise in improving India’s ranking in ease of doing business and was a step forward in the move toward paperless clearances. However, contrary to expectation, companies have been facing delays in clearance of goods owing to on-ground challenges. There is a need to undertake joint sessions for importers as well as Customs officials in order to heighten awareness and help resolve the issues faced by importers.
An urban equivalent of MGNREGA could be the answer to creation of employment opportunities and boost consumption demand
- Aditi Nayar, principal economist at ICRA
Experts take on job creation
Economists and experts in the field say that schemes that create employment at the lower socio-economic levels should be the prime focus in the upcoming Union Budget since the marginal propensity to consume is highest at these levels, and therefore will be the key driver for revving up the demand engine.
6 crypto ideas for Budget
Regulate the flow of money.
Options of raising capital.
Provisions and amendments in IT and GST laws for clarity on applicability of taxes.
Recognition of specific acts as offences liable to penalties so users and platforms can better understand their rights and duties.
Recognition of cryptocurrencies as tradable commodities.
Employment of blockchain technology for government records.
Export push in Budget FY22
The export market is a key driver of employment generation, and should be leveraged through a policy that supports greater participation in the global value chains (GVC). This would be possible by bringing down import tariffs, which would help us exploit — and benefit from — global markets.
Increase in the tax limit for employers' contributions to retirals
Budget 2020 introduced an aggregate monetary limit of Rs 7.5 lakh for exemption in respect of employers' contribution to the Employees' Provident Fund (EPF), National Pension Scheme (NPS) and the Superannuation Fund. Employers' contributions in excess of this limit would be a taxable perquisite in the hands of employees. This monetary limit should be increased from Rs 7.5 lakh to Rs 9 lakh which will result in higher savings for the employee by limiting the tax outflow.
Budget 2021 needs to hike gratuity exemption limit
Most companies today have their basic salary ranging around 35-45% of the total compensation paid to an employee and gratuity is calculated on such basic pay. Now since wages under new labour codes would constitute at least 50% of the total compensation, employers will be required to make gratuity payments to employees on at least 50% of the total wages.
This will result in increase in the gratuity payouts in the hands of employees. Since the gratuity payout to employees will increase on account of the new codes, the maximum exemption limit for gratuity could be increased from Rs 20 lakh to Rs 25 lakh.
Boost to local manufacturing
Budget run-up: Pending dues need to be released
A direct demand-inducing measure is for the government to speedily release all outstanding payments or tax refunds owed to service providers in the form of pending bills. This includes goods and services tax (GST) refund dues. These could be small or large companies, state governments, etc.
Budget 2021 may raise duty on finished goods
India’s import tariff structure could be revamped in the upcoming budget to provide lower duty on large inputs, especially those used in products that are exported, while keeping levies high on finished goods—a structure that would encourage domestic value addition.
Inputs used in producing chemicals such as methyl alcohol, acetic acid and PVC could see a reduction in tariffs, said people with knowledge of the matter. PVC is used in building and construction, health care, electronics and automobiles among other industries. Wood, a critical raw material for handicrafts, could also see a duty cut as the export-focussed sector is faced with a shortage.
Certain finished goods made of rubber, leather and plastic could see a rise in import levies. India currently imposes customs duty of 3-20% on rubber products and 10-30% on leather goods. Plastic items invite a duty of 10-15%.
A few considerations for job creation
GoI should ensure speedy creation of jobs, considering the distress caused by the pandemic. For employment generation, there is a need to raise the cap to Rs 50,000 to become eligible for 30% deduction on emoluments paid to new employees for three years. Enhancing allocation under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme, job stamps scheme for urban employment, addressing skill gaps, etc, should be key considerations.
FY22 likely a big year for asset monetisation
The market expects divestment target will be lower than that of FY21
BELOW TARGET: Divestment proceeds in recent years have been low as strategic sales have proven difficult
Budget 2021: A Big Bang Divestment Programme?
A massive asset-monetisation drive is one of the options suggested by experts to the government to raise funds for investment in infrastructure. Several transactions of strategic divestment and key public offers that began in the current financial year are likely to spill over to the next financial year, giving a lift to disinvestment proceeds. This asset-sale programme, along with the new public sector enterprise policy, will guide the disinvestment policy for FY22.
Govt can look to provide tax deduction for employees working from home: Pwc India
The government could look at providing deductions for expenses incurred by salaried employees while working from home in the upcoming Budget as it looks to boost demand, consulting firm PwC India said.
Addressing a pre-budget session, Pwc India senior tax partner Rahul Garg said demand creation is particularly focussed on money being given or left in the hands of the individuals.
"One clear thinking is at the level of small to medium taxpayer can we look at, in view of the COVID, a deduction to them particularly for salaried employees when they work from home.
"So whatever expenditure they are incurring working from home, which expenditure in the typical case would have been incurred in office by their employers if they were using offices to work if you allow that to be treated as giving them an entitlement for deduction and that saves tax for them. It will leave more money in their hands," Garg said.
Budget 2021 should rejuvenate India's banking system
GoI should also take steps to rejuvenate public sector banks (PSBs) by bringing down its stake to below 50% through the market route over the next 12 months. This should be done for all except 3-4 financially strong banks such as the State Bank of India (SBI), Bank of Baroda and Union Bank. Further, steps like creating multiple bad banks, creating development financial institutions, and creating an agency for investigating financial sector frauds are much needed.
Healthcare on agenda?
With the Covid-19 pandemic having revealed India’s health infrastructure inadequacies, Sitharaman would do well to increase allocations for healthcare. The 2017 National Health Policy pledges to increase public spending for healthcare to at least 2.5% of GDP by 2022, from the current 1.5%. The budget must work towards this target.
Budget needs fiscal policies to boost private investment
The space gained by expansionary fiscal policy should be utilised to enhance capital expenditure targeted towards areas that have a high multiplier effect. GoI should fast-track existing infrastructure projects underway, rather than go for new ones. It should notify the shelf-ready projects, which are in the National Infrastructure Pipeline (NIP), for implementation. It would crowd-in private investment and kick-start a virtuous cycle of revenue, job-creation and private investment.
Budget 2021: Much needed fiscal support
The need for fiscal support to lift the economy is paramount. Hence, GoI should relax fiscal consolidation for a year, and announce a realistic fiscal deficit target for FY2022. Further, the deficit should be seen from the longer perspective of 3-4 years, and not be a one-year outlook. There is a need to go for a ‘fiscal deficit range’, instead of a fixed fiscal deficit target, as well as improve the quality of deficit by including off-budget liabilities, and ensuring greater transparency in bud ..