Fin Minister May Go For Cut In Personal Taxes, Spend On Infra
The economists are in the view that the Prime Minister Narendra Modi’s government will increase spending on infrastructure and cut personal taxes drastically to escalate in spending on roads, railways and rural infrastructure, which will revive the growth. Sitharaman is expected to announce a plan in the budget to invest 105 trillion rupees ($1.48 trillion) in infrastructure over the next five years. By then it hopes to make India a $5 trillion economy, compared with $2.8 trillion now, government sources have said.
It is known that India is facing its worst economic slowdown in a decade. Growth slipped to 4.5% in the July-September quarter, worsening the job prospects for millions of youth entering the workforce each year.
Economists have warned the government against any “window dressing” of the budget and said it must come clean on estimates of revenue and growth and borrowing outside the budget.
“We will closely monitor the revenue assumptions to assess the credibility of the fiscal deficit target,” Sonal Varma, chief economist India and Asia, at Nomura said in a note.
Despite cuts in corporate taxes and monetary easing by the central bank, investments have failed to pick up, adding to Modi`s worries as he tries to quell public protests over a new citizenship law.
This is the second time that the Finance Minister Nirmala Sitharaman, who will present her second full-year annual budget to parliament, could defer the earlier target of cutting fiscal deficit to 3% of gross domestic product in 2020-21 by at least two years, government sources told Reuters.
The government has already announced plans to sell the loss- making national carrier Air India and oil retailers Bharat Petroleum Corp. Ltd, along with a few others. To boost domestic manufacturing, the budget is also expected to increase import duties on more than 50 items, including electronics, electrical goods, chemicals and handicrafts, targeting about $56 billion worth of imports from China and elsewhere.
This will be on top of roughly $28 billion of expenditure outlays from off-budget borrowings, as she seeks to keep the deficit in check.
Since taking charge in 2014, Modi has increased state spending on roads, railways, airports and ports, and has pruned state subsidies. The budget could push privatisation and set a target of 1.5 trillion rupees, after missing the target by a wide margin this year, the sources said. Domestic investors expect some relief on income tax rates after a cut in corporate tax rates in last September.