With less than a week to go for the presentation of the budget, the biggest challenge for Finance Minister Nirmala Sitharaman will be to take steps that will boost consumption. Since presenting her last budget in July 2019, Sitharaman has announced 32 steps to energise an economy that is facing a slowdown.
The government claims that the impact of these decisions, taken after extensive discussions with the stakeholders, has began to show 'returns', but everyone is waiting for the 'big bang' announcements in the second budget of the Modi 2.0 government.
The big idea, which has generated a lot of expectation, is whether Sitharaman will go in for cutting down the income tax rates, raising the exemption limits to put more money in the hands of the salaried class. If Sitharaman goes in for a growth-oriented budget, which has benefits for large chunks of population including the youth, it would help the government tide over negative sentiment because of low growth of jobs and the spate of protests across the country in which a large number of students have participated.
The government had given income tax rebate during the interim budget in February 2019 with an eye on the Lok Sabha elections. There is again pressure on the government to further cut down taxes as it had done with corporate taxes for companies, which were reduced by 10 per cent. The tax relief to the people may help increase their purchasing power to boost sales of the consumer goods and auto sectors, which are facing massive slowdown.
If the income tax cuts are likely to boost consumption in the urban areas, the government would need to supplement it by revving up the rural economy. Suggestions under consideration of the finance ministry include developing the food processing industry, which help the agriculture sector; speeding up infrastructure projects to help create jobs and boosting growth in allied industries like steel and cement.
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Another mechanism available for the government is relaxing the fiscal deficit target from the current 3 percent to 3.5 percent and aiming for higher growth. Industry has been asking the government to increase the liquidity to the non-banking financial companies (NBFCs). The sector has been facing a crisis since August 2018 after the collapse of IL&FS Group.
Industry sources were hopeful that as health was the focus of the Modi government during the previous budgets when it announced the Ayushman Bharat scheme, the 2020 budget could see enhanced outlays for the education sector. This may translate into setting up of more educational institutions, incentivising students loans and creating quality professionals, including teachers.
The recent spate of protests following the passage of the Citizenship (Amendment) Act has provoked many students and youth to come out on to the streets. They are already facing the brunt of the impact of lack of jobs and rising education costs. These youngsters translate into first-time voters, a group that had mostly sided with Modi in past elections. They may be looking for some direction for their future. Will this budget have something to change their sentiment? We will know on February 1.