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Messages to Give in Budget '20

Budget 2020 comes in the wake of very low expectations. For most, businesses would be happier if Budget 2020 didn't harm them any further after the DeMo and GST shocks
twitter-logoRajeev Dubey | Print Edition: February 9, 2020
Messages to Give in Budget '20
Business Today Editor Rajeev Dubey

Six quarters of deceleration in the economy and slower than projected growth in direct tax and GST have left the Centre with little space for fiscal stimulus. But the Union Budget is as much about messaging as it is about the fiscal roadmap. Here are the top messages Finance Minister Nirmala Sitharaman should convey for the confidence in economy and lack of fiscal largesse:

Tax authorities will relent. Hounding of businesses - big and small - by tax authorities hasn't gone down well. Government prides on it as an exercise against avoidance. Businesses see it as desperation due to low-tax collections. That tax authorities will relent can be the biggest message FM could convey. How about a one-year moratorium - until the economy recovers?

White-collar offences will not be criminal. Hefty penalty is the deterrant for some five dozen benign white-collar crimes, not imprisonment. For instance, violating CSR norms. Decriminalisation of Companies Act provisions would build confidence in the industry. We're moving there, but not fast enough.

Public investment will accelerate. No global economy has emerged from a slowdown without relentless public investment - even at the cost of reasonable fiscal imprudence. But the Centre's move to curb investment in Q4 will delay recovery. Fiscal 2020-21 needs an assurance investment schedule will not slow down.

Bank NPAs will not spread. Just when write-offs of non-performing assets by banks seemed in control, new fault lines threaten the vulnerable banking sector all over again. Another Rs 30 lakh crore (almost one-third of total loan outstanding) is at risk in agri loans, Mudra loans, unsecured retail loans and telecom outstandings. Do we have a plan to contain any collateral damage?

Consumption will be aided. With the economy decelerating further despite the government's measures in real estate, exports, systemic liquidity and bank consolidation, it's been clear that while the Centre has been working on supply side of the economy, the problem really lay in demand side - consumption. Manufacturers, consumers, even retailers need a consumption boost to the economy, either through GST rate cuts or leaving more disposable income in the hands of individuals through direct tax cuts.

Full repo rate transmission. The cumulative effect of lower interest rates on consumers as well as businesses is vastly underestimated. Now that vegetable prices have raised consumer inflation to 7.35 per cent, there's least likelihood of another RBI repo rate cut in February. FinMin and the RBI must prod banks - especially private banks - for full repo rate transmission since RBI began cutting rate in January 2014. A whopping 0.9 per cent has still not been transmitted to consumers/small businesses.

Personal tax will be cut. With corporate tax slashed to as low as 17 per cent, personal tax rate as high as 43 per cent is untenable. With joblessness rising and average salaries practically stagnant for five years, the suit-boot ki sarkar jibe is not too far. The Centre will have to find resources to provide relief to the common man, the salaried class and the middle class with personal tax rate rationalisation. Not just to drive demand in the economy but also to boost confidence.

Budget 2020 comes in the wake of very low expectations. For most, businesses would be happier if Budget 2020 didn't harm them any further after the DeMo and GST shocks. All the more reason, the messages should be driven home with a bang.

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