· After a year that had a devastating impact on human and economic capital, India is beginning to show signs of recovery. Growth for 2020-21 is likely to be at (-)7.7%, but, RBI’s forecast for growth in the first half of 2021-22 is an optimistic 6.5% to 21.9%. The vaccine rollout has also given hope that economic activity will resume normalcy soon. With this cautious optimism, the expectations from the Budget are for stepping-up the reforms momentum to stimulate growth and build India’s resilience and competitiveness, in line with the Atmanirbhar Bharat vision.
· Government’s fiscal options are significantly constrained with Centre’s gross tax revenues contracting by 12.6% during the first eight months of FY21. Even non-debt capital receipts like disinvestment are far lower than budgeted. However, considering the formidable impact of the pandemic, the government will need to put fiscal consolidation on medium term path and focus on capital expenditure to turnaround the economy. Centre’s capex multiplier is estimated at 3.25, with positive impact on employment, demand and growth for all segments of industry, including small and mid-sized sectors.
· Budget could incentivise private investments into the infrastructure sectors. The National Infrastructure Pipeline envisages an investment of over Rs 111 lakh crore over the period FY20 to FY25, with about one-fifth contribution from the private sector. The last Budget granted exemption from capital gains, interest and dividends to sovereign wealth funds and pension funds, if invested in specified infrastructure activities. Similar incentive may be extended to anyone engaged in the business of developing, maintaining and operating an infrastructure facility who wishes to commit funds for investments in specified sectors, subject to certain conditions in terms of a timeline/ holding period for investments.
· This will not have any immediate revenue impact but will provide a tremendous boost to businesses keen to invest. At the time when tax benefits will kick in, the investments will have begun to yield returns for both investors and the government.
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