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'Budget needs to provide the boost to sustain an average 8-9% GDP growth over FY22, FY23'

We suggest a two-year rolling Budget as a prudent, one-off departure in the circumstances, akin to twin-dose vaccines.

January 25, 2021 / 03:30 PM IST

The 'Budget of the Century' has raised expectations as governments, in developed and emerging world, are viewed as 'messiahs' for deliverance from the pandemic-pain and concomitant socio-economic distress. Another twist is the potential US policy reset on stimulus (form and quantum), commerce, climate change - after four years of a rather unchartered detour - with implications for the USD index, investment flows and trade equations.

This jostling has businesses of all hues and households across the socio-economic spectrum stridently seek succor and relief. There is also a chorus to deviate from the FRBM path for two years given the economy needs to climb out of the deep rut of -7 to -9 percent degrowth accompanied by a likely 6-8 percent fiscal deficit in FY21.

India has chartered, quite well, an indigenously frugal course (minus cash doles, sectoral dollops, etc.) to tackle the pandemic and it's socio-economic fallout. But as every Doctor (medical, economic or political science) knows, such extreme stress is often prone to a relapse that must be cushioned.

To put the Budget imperative into a single phrase 'provide the prudent JAB to sustain an average 8-9 percent GDP growth over FY22 and FY23 whilst ensuring a risk-free rate at sub 6.25 percent'.

That, as purists would argue is easier said than done. We acknowledge and hence suggest a two-year rolling Budget as a prudent, one-off departure in the circumstances, akin to twin-dose vaccines. In particular, this could allow for much debated, generally acknowledged budget ideas to see the light of day and deliver. For instance, an Infra-Finance omnibus institution (on lines of NDB of BRICS fame or erstwhile IDBI), a specialist healthcare funding agency (like PFC, IRFC) etc. The oft repeated number of $18 trillion (uber patient capital is it) in negative yield instruments keeps conjuring.

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Arguably, such a departure is also conducive to test the tax-buoyancy and price-elasticity premise in the Indian economy. The recent outcome in Realty sector after a stamp duty rebate augmented by discounts from developers is more than encouraging. Telecom voice & data J-curves prior to that with economy multipliers in tow add weight too. Could we begin with the automobile sector tagged to a scrappage rule and green thrust?

Other specific expectations encompass i) hike in personal tax threshold, ii) review of raw material- finished product duty inversions post recent spate of ADD and China linked import restrictions, iii) incentives to stimulate Realty demand and iv) one-time relief for corporate rejig as third Gen of business families seek to unleash the potential unfettered by cross holdings. Be that as it may, on cue from Gates & Buffet consent in a 2019 interview for higher taxes on the rich – digital businesses, inheritances and a COVID cess could be in the taxman's crosshairs.

On expenditure, PMGKAY, PMAY and MNREGA outlays may need to be sustained. Clearly, the FM's task calls for dynamic balancing of growth impetus vis-a-vis sovereign ratings in a post-COVID, even more VUCA world clouded by at best presumptive assumptions. Paraphrasing ace Olympian long-distance runner Emil Zatopek - a Finance Minister must propel the nation's dreams in the Budget, even if all the money is not in the pocket!

(The article is by brokerage firm Ventura Securities.)

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
first published: Jan 24, 2021 08:20 am

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