HOW CAN BUDGET 2021 HELP TURN INDIA INTO A $5 TRILLION ECONOMY?

Whether this Monday morning will bring on the blues or light up 2021 with the spectrum of hope, remains to be seen. But as an Indian, an optimist and a realist, here are my thoughts on how Budget 2021 can bring us closer to our $5 trillion dream.

In 2018, while addressing the World Economic Forum in Davos, Switzerland, PM Modi expressed an aspiration — to make India a $5 trillion economy by 2024-25. Since then, it has been our strongest desire. 

COVID-19 had some severe implications on the Indian economy and the Union Budget for 2021-22 will play an essential role in pivoting India towards recovery and achieving our ultimate goal. After an unrepentant year, people have numerous expectations from the upcoming Budget. Here are a few pointers that the government should consider, not only for Budget 2021 but for the years to come: 

More spendable/net disposable income

This tops the wishlist for every taxpayer in the country. The government should cut citizens some slack and raise the basic tax exemption limit for the population still coping with the year-long effects of the pandemic, which aren’t over yet. The GST rates should also be looked at, considering lowered GST rates will make products affordable and increase demand. India is primarily a consumption economy, so more disposable income in the hands of citizens means that more money will be spent and the economy will get a boost.

Extended support to manufacturing and efforts to attract more foreign investment

To cope with the demand-supply implications of COVID-19 and the sentiment to boycott China, the government and domestic manufacturers need to work hand in hand. In Budget 2021, the government should reduce the GST tax slabs, waive custom duty on raw materials and provide more incentives to manufacturers to help them bounce back. 

Importantly, the government must encourage foreign businesses to set up shop in India by facilitating single-window clearance for FDIs, among other measures. Sector-specific industrial parks are already materialising, but increased FDI limit, reduced taxes, enhanced pricing mechanism, inviting international manufacturing and introducing funds for export can also be some game-changer initiatives in the Budget 2021. 

Focused investment in skill development and education

The pandemic was an eye-opener for the skill gap in India. It called for a fundamental need to improve the education scenario and stress developing skills in the country.  

The government introduced the National Education Policy in 2020, and everyone will pay close attention to its implementation in Budget 2021. The pivot towards digital education due to pandemic should be considered essential, and the government must take steps to improve the infrastructure requirements that come with it. According to a UNICEF report, only 24% of Indian households have internet connections to access e-education. The focus should also be on improving the infrastructure status of homes and even educational institutions. 

A FICCI report stated that by 2022, 9% of India's workforce would be deployed in new jobs that do not even exist today. It also said that nearly 37% of the Indian workforce would be in jobs demanding radically different skill sets by 2022. Thus, Indians need to be equipped with the required skill to support the economy and accelerate it. While planning this, the government must be focused on diversity and the inclusion of transgender professionals and the specially abled. 

Higher spending in healthcare

Another valuable learning from the pandemic is the need for enhanced healthcare facilities and infrastructure in India. The government should allocate larger funds in R&D for the health and wellness sector and increase expenditure on infrastructure — more physicians and hospitals. They should introduce higher tax incentives so that private investments in modernising medical facilities increases. They should also make healthcare more affordable by reducing the GST for healthcare services. The government should consider mental health a significant health issue and increase budget allocation to facilitate counselling in schools, colleges, offices and online. 

The unprecedented times also underlined the fundamental importance of insurance as financial protection for oneself and family. The government should reduce the health insurance premium paid by taxpayers in the new tax regime to make it available to all and revisit the limits currently set to claim a deduction of health insurance premium. 

Exemption in loan rates and long-term capital gain tax

With the government's timelines regarding 'Housing for all' closing in, everyone will be paying attention to the deduction in home loans and additional tax benefits for new home buyers in the coming Budget. Moreover, to pace the capital market, investors with higher tax brackets should be given a breather from the multiple tax burdens. One way to do this is to exempt long term capital gains on equity shares and extend the holding period of securities to 24 months.

Backing up the agriculture sector

Amidst the agitation from farmers, the Budget 2021 can send a positive message by doubling farmer incomes. The Budget should introduce subsidies on inputs such as fertilizers, irrigation, electricity (power) and seeds. The government has already announced agriculture infrastructure funds in the Atmanirbhar Bharat Abhiyaan. In the upcoming Budget, the government should push the funds in the agri-research, warehousing facilities, rural roads, cold storages and more. Tax concessions should be given to the private sector and to entrepreneurs willing to set up such logistics or invest in it. Digital is the future, so the focus should also be on bringing access to new-age technology and digitisation of the agriculture space.

Support to real estate

The real estate sector is one of the largest employment providers in the country. Realtors are looking forward to a single-window clearance for projects, reduction in GST rates and input tax credit from the upcoming Budget. The unsold inventory due to COVID-19 calls for an exemption from the notional rent and extending the period of exception. Giving the 'infrastructure' status to real estate projects to attract investments by industrialists who get tax exemption on 'infrastructure' investments, is a persistent demand by the sector.

Infrastructure in general needs focused attention - with simple policies and quick decision-making. Future-forward planning and speed in implementation of roads, rails and transport, enhancing of supply chain hubs and the adequate availability of essentials like water and electricity are key.  

Support to MSMEs for realising the India dream 

The MSME sector is expected to lead the charge and contribute $3 trillion of the $5 trillion of the 2025 dream. To enable them to achieve this, the budget must envisage a roadmap for their success. Efficient access to loans, initial tax holidays, single window clearances for all approvals, availability of land among other measures are a must. 

Achche din for senior citizens and retirees

The government should enhance the tax exemption to provide relief to retirees and senior citizens who depend on pension income for their livelihood.

Crucially, the budget should look at continuing the focus on renewable energy and pave the way for every industry sector to adopt it. This will have massive environment and cost benefits in the long term.  

The Budget every year comes with a sea of opportunities and hope for the country’s economy. While it is believed that the Indian economy is expected to grow by 11% in real terms during 2021-22, this year’s Budget needs to be a combination of long-term goals and enough funds (keeping in mind the financial challenges laid by the pandemic). 

No one can predict the future. All we can do is be prepared for it.