There are high expectations from this budget, but there will also be some restrictions. The middle class always hopes that there will be some relief in income tax. However, I do not think there will be any shortage in taxes. But it is expected that especially a tax slab of 30%, which is usually imposed after Rs 15 lakh, will be increased. That is, this slab may be applied to those earning 25 or 30 lakh rupees annually. This will give some relief to the urban middle class and will help increase consumption.Consumption trust: When the ability to buy, it will increase consumption. For the last 30 years, India’s economy has generally been running on consumption. Therefore, it is natural that we have to promote consumption or consumer expenses. Anyway, the middle class spends the highest part of its income on consumption. The rich or upper class spends a very little part of their income on consumption. Most of their income goes into savings. Therefore, it is not the upper class that is promoting the development of this consumption, but it is the middle class or lower middle class that is carrying it forward.
Money in the market: Changes in the income of the middle and lower middle class will change the demand for consumption, as they have more tendency to spend. On the other hand, this will also increase their savings, because if tax structure improves, then naturally people will be more tax savings. This will also save some extra money, which they can invest in savings. They can also invest this money in a savings account or stock market, which can have a positive impact on the stock market or other markets.
Fiscal deficit: There is also a concern that revenue expenses may increase with time. If the revenue expenditure increases, the reason for this may also be the implementation of the Eighth Pay Commission. It is expected that the salary of government employees and government pensioners will increase by 25 to 30%. At the same time, it is very important that some financial discipline or fiscal prudence be implemented, because if the expenditure increases with salary, it will be difficult for the government to reduce fiscal deficit. The fiscal deficit has increased significantly since Kovid. It is being thought that it should be brought up to about 3% of GDP. It is currently around 4.9%.
Corporate Tax: If it is to be brought back, more tax collection and more revenue will be required. One way for this is to make the tax structure wider. One good thing is that GST collection is increasing. But on the other hand, we are seeing that common people, ie salaried are facing more tax burden. At the same time, if we look at the total revenue structure, then the contribution of corporate tax has decreased compared to homes and salaried persons. In such a situation, better adjustment in corporate tax is needed.
Tax on the rich: If tax slab is being increased to encourage expenses from the middle class, then it can also be thought of taxing the superrich. But for this, the definition of superrich has to be clarified. You define Superrich as those who earn more than 1 or 2 crores annually. This can help some extent to help financial precautions. Secondly, for financial precautions, other methods such as making tax structure broaden, will also have to think.
Capital expenditure: We know that revenue is going to increase, so we also expect that capital expenses will also increase. Most of the capital expenditure goes into things like infrastructure, so we have to encourage it. India’s business environment has been improved due to capital expenses so far. Multiplier Effect of capital expenditure is much higher than revenue expenses. If you invest 1 rupee in capital expenses, then you get back as about 2.5 rupees. At the same time, if you invest 1 rupee in revenue expenses, then its return is only 0.7 or 0.87 rupees. Therefore, capital expenses (CAPEX) are very important.
Climate attention: There is a need to think seriously about another thing in the budget, which is still missing. In fact, Climate Adaptation Finance has also been a major shortage. Most of the money in India is going into Energy Transition and Mitigation Finance. We are talking about things like electric vehicles, solar energy, green hydrogen. These are all components of mitigation. But as far as our net zero target is concerned, a target of up to 2070 has been set for it, but before that, a lot will have to be done about it. Therefore, the Finance Minister should think seriously about adaptation finance and focus on Climate Resilient Infrastructure and Climate Resilient Agriculture.
(The author is the director of CNED and Orf Kolkata)