This article might be ahead of time but we have only 4months. Ballooning fiscal deficit and rising unemployment married with falling consumption. The govt cannot service the debt and the whole game starts from there where we will be planning in the next 4 months what type of budget planning will be required is going to be bib crystal ball gazing game. Taxes at all level needs to be lower since any hike in the same like Dividend Distribution tax, Security Transaction Tax, Hike in MAT, Capital Gain tax or slab changes of any tax would be detrimental for the Indian economic growth. The corporate tax hike is not expected but taxes like digital tax as imposed in European countries or increase in VAT in a certain category of sectors would be high impact on the Indian economy. We are just 4 months away from the Budget and the situation is very critical.
The government needs to understand that they have to bear the pain of this pandemic for the next 2 years until the job employment market settles out. The fact is that unless the employment generation happens consumption will not pick up which leads to the growth of manufacturing and demand for goods. All the regulatory bodies like RBI, SEBI, MCA, Finance Ministry & Ministry of Economic Affair all together needs to understand that if they try to bring any rules or regulation which brings down the growth of an Industry then they should avoid such a thing for the next 2 years.
The hike of petrol and diesel prices through the increase in taxes has already pushed up inflation. Well, it not only the transportation cost which plays its dice but also for the farmers who have to buy diesel for farming activities like (water pump, Tractor etc).
Flood and state payments are going to be double-edge expenditure for the Indian economy. Our point is that the Indian economy should avoid anything which impacts employment creation. We have seen in the past many instances where economic policies or taxation policies have slowed the industry growth. The current deficit number of Rs 10lac cr or Rs 20 lac cr (whatever wild guess or projection metric are used) needs to be recovered over the next 5 years.
Indian economy is nowhere like the US or China hence it needs to give time to the Industries for the next 2 years to manage and get out of this slow down phase. We don’t pay social benefits to unemployed people hence we need to provide time to the Indian economy to recover from the slowdown. Any tax hike or anything which sucks liquidity from the market would slow the recovery phase of the Indian economy. We appreciate that Maharashtra has reduced stamp duty to keep the Real estate sector alive.
The industry has to fight with price war as supply and lockdown across the globe has slowed the production and inversely raised the cost to an abnormal level. The profit margins for FY-22 will be under pressure. For example, higher global commodity prices – gold, silver, crude remain a pressure point. Bus fare, airfare, other conveyance, porter charges, and railway fare etc have gone up and will remain at elevated levels. As food prices have gone up the cost of living for those who have lost a job or who are facing a salary cut to the tune of 30% to 50% remains at a risky level. The base salary of the jobs has come down significantly and this will remain for the next 2 years on a maximum stretched period. Hence the battle on the ground is more.
Indian government might have flooded the street with excess capital but who will borrow when their no demand. Demand cannot be fuelled by liquidity. It no doubts that Indian economic growth post-COVID will gradual but will be slower if the Indian government actions are detrimental to economic growth. The various sectors of the Indian economy will face different speed of recovery and growth where much industry might take significant time to revive. There will be a significant divergence in sectorial growth of Indian economy. From now the next 4 month India will have its budget and that is going to decide the fate of recovery for FY-22. RBI monetary policy action has now the limited scope of a rate cut and even if that happens maximum of 0.25bps would be on the plate. One benefit which India might get that low-interest rates and low taxes will help to fight against the elevated raw material prices and high cost of production. FY-22 is more equally divided between government and private. Infrastructure no doubt needs special attention with no further excuse of delay in project execution. The survival of the Indian economy is now how the Indian government control its greed of making over its own losses.
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