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Guest Column: The 'make or break' budget

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The recent cash ban has sucked a lot of momentum out of one the world’s fastest growing economy. Finance Minister Arun Jaitley is meticulously examining ways which can boost the slumping economy, as a result of s. No budget is effortlessly manageable, but 2017 is certainly taking challenges to a new high with several global and national factors to take note of.

Arun Jaitley should be immaculately prepared as this is one of the most awaited budgets ever, in the history of India. The fourth budget of the NDA term, this budget demands to be the beautiful balance of crisis management and future prospectus. The government, a couple of months ago was of the notion that they will be able to reap a humongous amount of money as unreturned old currency notes. In the government’s perspective, this sum could have been later invested in infrastructural development along with other progressive measures. This plan seems to have misfired with a huge chunk of 'unamounted' currency finding its way back to the banks. This concern has to be dealt with caution, immediately.

One factor that can be attributed to the demonetisation effect is the increased collection of direct taxes. This may further culminate in more of such fraudulent cases giving into the pressure and larger chunks of money being deposited in the banks as some kind of income.

Expectations are riding high as government may benefit the salaried class by increasing the margin of the income tax slab. Taking into consideration the existing miniature base of the tax payers in the country, many experts have warned the government against taking such a move.

The government clearly has to strike a balance between staying loyal to the fiscal deficit roadmap and borrowing large amounts to spend on improving the economy. As a nation that’s pacing towards becoming a global power, the minister will have to bring down the fiscal deficit to three per cent of GDP in FY18 to maintain the stability. Many have observed based on the current scenario that the government may announce a target of 3.5 per cent which is slightly more achievable.

By far, the hardest challenge would be to make up for the crack caused by the private sector’s unwillingness to invest in the economy due to debt-heavy balance sheets and insufficient demand. Also, scrapping the fiscal plans would require exaltation by rating agencies will need time to be set up. The alternative would not be a cakewalk either; not loosening the grip on fiscal deficit could weaken demand in the economy more.

For capital markets, it’s a mixed scenario. On a positive note, there might be some extra incentives for new investors in equity markets. But as a flipside, it is being assumed that the government may increase the threshold for long term capital gains to three years from the current one year. The current system favors long term investors as they do not have to pay long term capital gains when they sell. This privilege is often taken advantage of by several high net worth individuals to launder their unaccounted income, by counterfeiting long term capital gains.

Prime Minister Narendra Modi mentioned that the financial markets must make a fair contribution to nation-building through taxes and we are looking forward to a revolutionary budget that’s inclusive of all.

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(Santosh Nair is the editor of Moneycontrol. The views expressed here are personal, and Indiantelevision.com need not necessarily subscribe to them)

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