Fiscal consolidation is keenly awaited.
The challenge before the government now is to use the factors that are favourable to its benefit.
The government has hiked gold import duty to 15 per cent from 10.75 per cent to check the current account deficit (CAD) and rising import of the yellow metal. The duty changes came into effect on June 30. Earlier, the basic customs duty on gold was 7.5 per cent, now it will be 12.5 per cent.
Industry body CII has pitched for a reduction in personal income tax rates, decriminalisation of the goods and services tax and a relook at the capital gains tax rates as part of its agenda presented to the government for the forthcoming Budget. Arguing that the GST law already contains adequate penal provisions for deterrence against evasion of taxes, CII has suggested decriminalisation of GST law. Also, the applicability of prosecution provisions should not be based on the absolute amount of tax evasion but should be based on real intent to evade the taxes and a certain percentage of the tax payable, it stated.
Low consumer demand, a slide in investments and troubles in the banking sector should prompt the government to recalibrate taxes and expenditure. It is also important to ramp up spending on health care and education, says CII president Sumit Mazumder.
RBI's surprise rate cut has revived sentiments of India Inc.
Budget for 2022-2023 has returned to its agenda for protectionism in the name of creating a self-reliant India, points out A K Bhattacharya.
Although India's share in the world toy trade has marginally improved, it still lags behind China's. Toys are not China's main item of export, but about two-thirds of the toys sold globally are from China. The world exported toys worth $73.2 billion in 2021: China accounted for 66.2 per cent, or $48.5 billion of that, out of which mainland China made up $46.1 billion and Hong Kong $2.4 billion.
Finance Minister Nirmala Sitharaman will have to do a tight-rope walk between staying fiscally prudent and general public expectations of lower taxes and a wider social security net, while at the same time firing the engines of the economy before general elections. Sitharaman will on Wednesday present her fifth straight Budget at a time when the economy is slowing due to global headwinds and specific sectors need attention. In the run-up to the Budget presentation, expectations are rife that she may tweak income-tax slabs to provide relief to the middle class and increase spending on the poor through programmes such as the rural job scheme while ramping up financial incentives for local manufacturing.
Market participants say the focus of Finance Minister Pranab Mukherjee will be on fiscal deficit, more so in the wake of the recent debt crisis in some Europeon countries.
Senior tax officials were told to focus on cash collection from the arrears so that the target for FY23 was achieved and the overall revenue position improved.
India's current account deficit is expected to deteriorate in the current fiscal on account of costlier imports and tepid merchandise exports, according to the Finance Ministry's monthly economic review. The review released on Thursday by the ministry also said that global headwinds would continue to pose a downside risk to growth as crude oil and edibles, which have driven inflation in India, remain major imported components in the consumption basket. For the present, it said, "their global prices have softened, as fears of recession have dampened prices somewhat. This would weaken inflationary pressures in India and rein in inflation."
Macroeconomic management is usually a lot more comfortable with lower fiscal deficits. The sooner we get there, the better for the economy, says former Chief Economic Adviser to the Government of India Shankar Acharya.
This Budget plans for an increase to 10.3% of GDP from 9.9%.
But their trajectory and direction have been largely influenced by politics and the political leadership's understanding of how the economy needs to be managed, explains A K Bhattacharya.
Can the finance minister manage our expectations, asks A K Bhattacharya.
The external environment has worsened further. While the Finnish economy entered into a recession, Swedish economic growth also dipped. The Finnish gross domestic product (GDP) dropped 0.6 per cent in October-December, 2022. It was the second quarter of negative growth, which is a technical definition of recession.
'The finance ministry's decision to accept the deficit target of 4.5 per cent in 2025-2026 appears to have emanated from its endorsement of the Finance Commission's view that the Indian economy will continue to remain impacted by the pandemic, adversely undermining its growth potential,' notes A K Bhattacharya.
'I'm pitching India for the strengths we offer, including the English language, engineers, doctors, nurses, professionals, innovative talent of startups.'
It would not be surprising if India, the world's largest producer of milk, has to resort to imports to meet the elevated summer demand, states Surinder Sud.
The decline in gold imports has helped in narrowing the country's trade deficit to $106.84 billion during the eight-month period under review as against $133.74 billion in the year-ago months.
The bulk of states' revenue comes from the devolution from the Centre's divisible tax pool, GST, VAT on petroleum, and excise duty on alcohol.
'We forecast real GDP growth to moderate to 6.7 per cent in the year ending March 2018.' 'However, as disruption fades, we expect to see a rebound in real GDP growth to 7.5 per cent in the next fiscal year.'
Equity benchmarks Sensex and Nifty ended on a mixed note on Wednesday as the euphoria about the Budget fizzled out, with investors going for profit-taking ahead of the Fed interest rate decision. The 30-share BSE benchmark Sensex climbed 158.18 points or 0.27 per cent to settle at 59,708.08 after it trimmed most of the intra-day gains. During the day, it had zoomed 1,223.54 points or 2 per cent to 60,773.44.
Among the current FTAs with significant trade deficits for India, five are with countries from the 10-nation Asean bloc. Exports to the 10 economies stood at $ 37.4 billion in 2018-19, up by 9% year on year. On the other hand, imports were higher at $ 59.31 billion, up by 25% from the previous year's $ 47.13 billion.
In the last five years, imports from HK have more than tripled -- from $5.6 billion in FY15 to $17.1 billion in FY20. In the same period, exports declined by 20 per cent -- from $13.6 billion in FY15 to $10.8 billion (annualised) in FY20.
'You may see some movement indicating a simpler tax regime with less exemptions but with fewer tax rates making life simpler for taxpayers.'
Sitharaman's Budget missed deficit target for the third year in a row, pushing shortfall to 3.8 per cent of GDP in the current fiscal as compared to 3.3 per cent previously planned.
IThe fiscal deficit target for 2020-2021 was originally set at 3.5 per cent of GDP. But the government's revenues have collapsed and its expenditure burden will only increase over the Budget estimates.' With the government having already planned for an additional borrowing of over Rs 4 trillion, the fiscal deficit for the current year would be much higher than the Budget estimate, notes A K Bhattacharya.
It is now becoming increasingly clear that rising imports have played a significant role in sustaining the buoyancy in revenues from GST, notes A K Bhattacharya.
Any reduction in devolution could aggravate the strained relations between the Centre and some opposition-ruled states on a number of issues, including CAA.
The Reserve Bank of India (RBI) will make its bi-monthly policy announcement next week. The macroeconomic backdrop to this event is perhaps the most reassuring in the past several quarters.
While most experts suggest the government loosen its purse strings and not worry about the fiscal deficit in a pandemic impacted year, it will be a tightrope walk for the government to increase spending without going overboard.
Ratings agency Moody's on Tuesday affirmed India's sovereign rating and upgraded the country's outlook to 'stable' from 'negative', citing receding downside risks to the economy and financial system.
The government has been waiting for the expansion by the private sector, Finance Minister Nirmala Sitharaman said while reminding India Inc of various measures including corporate tax rate cut, policy consistency, ease of doing business, among others to facilitate investment.
The windfall taxes on domestic crude oil production and fuel exports will generate close to $12 billion (Rs 94,800 crore) for the government in the remainder of the current fiscal while trimming profits of firms such as Reliance Industries Ltd and ONGC, Moody's Investors Service said Tuesday. On July 1, the government imposed windfall gain taxes on the export of petrol, diesel and aviation turbine fuel (ATF), and on the domestic production of crude oil. It has also mandated exporters to meet the requirements of the domestic market first.
The Budget oration of the finance minister and the confidence with which she delivered it, along with the measures and the recent upsurge in the economy would all contribute to unleashing the storied 'animal spirits' and help the economy run on the growth path quite smoothly. Or so the government hopes, notes Shreekant Sambrani.
'This government has always been fiscally conservative. It never resorted to fiscal profligacy.'
India's growth outlook has weakened sharply this year, with a crunch that started with the non-banking finance institutions spreading to retail businesses, car-makers, home sales and heavy industries.
'While we note the very strong cyclical recovery in the economy, we believe there is still uncertainty over medium-term prospects.'
