This year's Union Budget holds a lot of significance for the country. Not only because it is coming after the coronavirus pandemic ravaged the economy but also because it has the onerous task of putting growth back on track to achieve the target of a $5-trillion economy by 2024. The pandemic, however, has put the government's finances under a severe strain.
While both direct and indirect tax mop-up (including GST) are likely to miss the budgetary targets, the fiscal deficit touched 135 percent of the budgeted target during the April-November period of 2020. Thus, there is very little manoeuvring space for a huge fiscal stimulus, given the high deficit numbers. In this scenario, Finance Minister Nirmala Sitharaman would need to do a fine-balancing act of boosting economic growth while keeping an eye on fiscal prudence.
The government may look at spurring its revenue collections. And, this can be done if the Budget opts for higher public investment through larger outlays for infrastructure, the construction sector and others. This will, in turn, support the growth of many related sectors such as cement, steel, aluminium and financial services. As companies operating in this space see a demand revival, corporate growth will pick up, leading to higher tax payouts to the government.
However, higher outlays towards capital expenditure may push up government borrowing. Therefore, investment in the capital market should be encouraged, which can be the source for raising much-needed equity capital and debt for India Inc.