Union Budget 2019 - What To Expect?

The BJP government has returned with a strong mandate and this could have positive ramifications on the upcoming budget.  One of the main reasons why the return of the BJP government has been hailed as a positive is that it indicates continuity in policy and a pro-growth agenda. The finance minister, Nirmala Sitharaman, has the political vantage of a stable majority and as such has the luxury to present a bold, reformist and decisive budget. While she might toe the populist line in terms making some allowances for farmers, micro industries and defence personnel, overall she is likely to present a prudent budget that should give a fillip to productive activity in the economy. It is imperative that the measures announced should focus on creating jobs, stimulating private investment and containing the fiscal deficit. 

Harnessing the Demographic Dividend

The budget should focus on generating employment and giving a boost to skill development amongst the country’s youth. One of the key factors that is likely to hold India in good stead in the years to come is its demographic dividend, ie. a large employable population. In order to optimally harness this value, the government should implement schemes that can encourage skill development in the country so as to add to the overall productivity of the population.

Taxation

On the taxation front, there are strong voices calling for a reduction in corporate and personal taxes. Currently, the corporate tax rates in India are among the highest in competing economies. To address this, in 2015, the government had proposed a reduction of corporate tax rates with the corresponding withdrawal of exemptions in the next four years. While corporate tax rates have been reduced to 25%, it is currently only applicable to companies having a turnover of up to Rs 250 crore during 2016-17. The government should make 25% as the single rate of tax for all companies in India. In order to give a boost to the household savings rate, the government needs to provide further incentives to encourage savings. These could include enhancing the 80C limit for long-term savings. Additionally, there is also widespread expectation of a further rationalisation of GST slabs and rates.

Giving a Fillip to Growth

The government also needs to announce measures that encourage investments across sectors and makes exports more viable. While the “Make in India” initiative gave India’s manufacturing sector the much needed shot in the arm, the “Start-up India” initiative gave a boost to entrepreneurial activity in the country. Additional measures in this space can help the government generate employment and move further along its growth agenda.

Fiscal Prudence

From a revenue perspective, there is an immediate need for the government to accelerate PSU divestments. A well laid out disinvestment calendar can provide future visibility in terms of funds being raised by the government and its consequent impact on the deficit numbers.

The list of budget expectation can be long and varied. While it is not possible to meet everyone’s expectations, we do believe that the government will stay tethered to its overall goal of inclusive growth.