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What is the Budget?
Budget is the annual financial statement of the government. It is presented every year in the month of February generally by the Union Finance Minister of India. As per Article 112 of the constitution of India, a statement of the estimated expenditure and receipts of the Government for a particular year is presented in this annual financial statement.
What is the expectation of various sectors of India from the budget?
Union Finance minister Nirmala Sitaraman, PM Modi and other senior officials are taking back-to-back meetings with several experts and key people to get the nerve of the nation and prepare a well-suited budget for people.
Government has the task of fueling economic growth and addressing the resurfacing of COVID-19 concerns too. Government is meeting with industry leaders, entrepreneurs, and private equity investors to get the exact idea of the stock market.
What is the current position of the Indian Economy?
The Indian economy had registered a negative growth rate of 7.4% in the second quarter of FY21 and a positive growth rate of 8.4% in the second quarter of FY22. A lot of companies are applying for IPOs in expectation of high growth including some famous ones like Zomato, Paytm and Nykaa. This number has surged this year in comparison to the past three years. Nifty is shining to 22% and Sensex has given 22% returns so far this year. This shows that companies are very confident for high returns in the upcoming year. Startup sector has got enormous funding that made unicorns to 42 companies in 2021. Now the government needs to address some key issues such as disruptions in the supply chain, shortage of semiconductors and revival in functioning for which the government needs to take steps in the upcoming budget.
In meetings, experts have suggested that the government should focus on accelerated growth and equitable distribution to maintain fiscal prudence by continuing national asset monetization. The Mutual Fund industry is looking forward to it. Experts have also suggested the government create an Urban MGNREGA scheme. It is always better to give employment to people rather than just giving them money through various schemes. Employment supports consumptions and pushes a healthy growth cycle.
On the other hand, the automobile sector is struggling with the chip shortage which needs to be addressed by the government. Also, the housing sector needs some new regulations to get a boost in its growth. Interest rates on housing loans, repayment issues have been constant for 7-8 years which need to be revised now. The domestic savings which are often invested in real estate and gold only should be encouraged to divert to other financial assets also. Government can also mitigate the LTCG from 20% to 10% to give the sector a push to move forward.
India is going to become a 5 trillion-dollar economy and then later maybe 10 trillion-dollar economy by 2050, we will definitely need 5 times more venture capital and private equity money to fuel this growth. A lot of such investments will be coming from the Indian market only. So the Indian government needs to focus on Indian investors too.
These days domestic capitalists are of the opinion that risk capital from venture capital should not get taxed at more than twice the rate at which the listed market gets taxed. There should not be different slabs for different years. There should be a uniformity regarding this. It will result in no tax arbitrage for people who invest in risk. The tax for startups should be lower to let them thrive properly. The ‘fund of funds’ concept of DPIIT and ministry of finance was a successful effort in this direction a few years back that has marked grand success. So, all they are expecting is a stable and predictable tax regime which is easy to understand.
In addition to the Gati shakti program, vivad se vishwas scheme, experts have also suggested to put 5000 crore to Agri tech fund and let it be managed by a constitutional body.
The government has created and modified the IBC norms which removed the hindrance in the fast growth of the market. Similarly, the government needs to create a regulation or AIF also so that it can be used as a stimulus in India’s growth in the upcoming years.
So basically, we can expect India’s upcoming budget to be focused on -
The government will focus on investments. It will try to increase the infra capex. Although the government is making food parks to make the food sector strong, it still needs to do a lot more things to develop a competitive manufacturing sector. Also, hospitality and other service sectors like tourism are looking up to the government for a stimulus. Bank pioneers are advising the union government to replace bank guarantees with the surety bonds. Recently, some cities including Lucknow have issued municipal bonds but more cities need to come under this list now. Some reforms in policies by the government are needed to boost development and sustainability.