Finance minister Nirmala Sitharaman who is scheduled to present her second budget today is expected to announce steps to encourage private investment and reverse the economic downturn. Just as the welfare schemes were the focus of several budgets in the past few years, economic growth, private investment and tax relief are likely to dominate the Budget 2020.
FULL COVERAGE:Union Budget 2020
Here are a few measures that can encourage private investment:
1. Bolster business sentiment: The budget 2020 can announce more measures to boost business sentiment on the lines of recent efforts by the government to encourage private investment. These steps included decriminalising failure to adhere to corporate social responsibility (CSR) laws by the corporates, the introduction of faceless e-assessment scheme to eliminate interface between an assessing officer and a taxpayer etc. Prime Minister Narendra Modi had also reached out to industrialists to "invest boldly", assuring corporates that "no inappropriate action will be taken on genuine corporate decisions".
2. Infrastructure investment: Encouraging private sector participation and introducing novel finance models will be key in spurring investments in the economy. FM Sitharaman in December had unveiled plans for Rs 102 lakh crore infra projects. The minister said that Rs 102 lakh crore worth of infrastructure projects have been identified for the next five years as part of the government's spending push in the sector. The minister said that another Rs 3 lakh crore of projects are likely to be added in this pipeline by the states, taking the total to Rs 105 lakh crore of projects.
3. Fiscal reforms: After the government's September 2019 announcement of corporate tax cut for domestic companies, the industry is seeking more tax reforms from FM Sitharaman in budget 2020 such as an action plan to converge tax rates across various sectors, removal of dividend distribution tax, extension of time frame of long-term capital gains (LTCG) tax, among others.
4. Personal tax cut: The government is expected to announce an increase in income tax exemption limit from existing Rs 2.5 lakh to Rs 5 lakh, that means a tax rate revision to 10% for individuals with taxable income over Rs 5 lakh and up to Rs 10 lakh. Similarly, a 20% tax rate revision for individuals earning over Rs 10 lakh and up to Rs 20 lakh and 30% for income above Rs 20 lakh. Meanwhile, there is also the expectation that the government will lower the highest tax slab rate from the current 30% to 25%, i.e., increase the corresponding limit from Rs 10 lakh to Rs 20 lakh. This relief will leave more (disposable) income in the hands of the people thereby leading to more demand for products and services, which will eventually lead to more production and churn in the economic activity.