Vaccine budget to help recover Covid-hit economy

The farm sector is likely get more emphasis in the budget this time as it was the only saving grace in the Covid aftermath as it grew by 3.4 percent despite the economy dipping to minus 23.9% in the first quarter, writes Sanjay Thapa

V-shaped Covid 19 impact is in the making of the budget this time — ‘V for vaccine’. The government has already introduced the Covid vaccine and expectations of the economy doing a V growth turnaround is being seen. With this, a Corona cess is expected in the budget particularly in the super rich category of the direct taxes. For the first time the union budget is to be totally paper less and will be accessible through a special app.

In post budget sessions since February 1 last year, several Atmanirbhar schemes have already been introduced, aiming to alleviate the impact of Covid on the lockdown affected sectors, like the 3 lakh crore collateral less help for the MSME sector, which was announced as a part of the 21 lakh crore Covid Atmanirbhar scheme announced in March. A one nation one ration card was also announced promising 5 kg of rice, 5 kg of wheat and 1 kg of pulses to every family of the poor. A higher allocation of 10000 crore to MNREGA was also announced to 2.33 crore daily wage earners. This budget is likely to allocate higher spending particularly as the unemployment rate has risen to 10 per cent by December 2020. PM Garib Kalyan Yojana as well as Kisan credit card yojana are likely to get more attention. Last year, in the post budget Covid package, the government had allocated 1.7 lakh crore in the PM Garib kalyan yojana. Infrastructure spending will also increase as the government has already committed US $ 1.4 trillion for infrastructure development by 2023.

Unmindful of the fiscal deficit concerns, the budget is expected to be siding towards boosting consumption, enhancing employment and injecting more liquidity in the economy. A major step towards this would be to lower the tax burden on the common man in order to leave more purchasing power as well as provide relief to the industry. Health infrastructure spending is expected to get a boost, so will expenditure on MSME in the wake of Atma Nirbhar bharat introduced by PM Modi due to Covid last year. Ecommerce and retail sectors are expected to get favourable treatment both in taxes and in processes particularly as the lockdown underscored the emphasis on the online platforms, Ecommerce and WFH facility. WFH has emerged as a big option in the Corona lockdown period necessitating people to work from home. This is likely to be treated as an option to employment or an alternative work format and some tax incentives may be forwarded in the oncoming budget in this area. Real estate and hospitality sectors which have been hit the hardest in the Covid period are also likely to get sympathetic treatment from the finance minister in the budget this time. Higher allocation on housing credit guarantee scheme as well as interest subvention scheme are expected to meet the PM Awas yojana schemes and affordable housing and rental housing for all.

More incentives and commission than last year is seen coming wherein the budget allocation was pegged at 25000 crore for the real estate sector. Rural sector and education is likely to draw more attention particularly as the latter has suffered with schools being under lock down for a major part of the year. Even as the lockdown has been lifted yet the impact of the Covid disruption has deeply impacted the unorganised sector which is still to come to terms with mass migration of workers and total shutdown of demand. With this an extra expenditure on MNREGA as well a  financial support package for the unorganised and micro enterprises is also being expected with more emphasis on cottage industries with ‘vocal for local’ support.

Meanwhile, the RBI and the government are likely to work out special packages towards addressing Covid debts in terms of bringing more relief to Covid affected borrowings like softening its stance on NPAs as well as moratoriums.The government had already announced a sharp downward revision in corporate taxes in last budget hence there seems to be lesser room in this front this time.

The farm sector – which is the burning topic today would also see many giveaways to woo the complaining farmers.The farm sector is said to have been long ignored whereby the farmer is said to have borne the brunt despite all other sectors of the economy being treated well in the last many years of independence. The Modi government is committed to double farm income by 2022 and hence is likely to announce more concessions to the farmer. It may be recalled the farm sector was only saving grace in the Covid aftermath as it grew by 3.4 percent despite the economy dipping to minus 23.9 % in the first quarter. Even as the government has denied to roll back the three farm laws it passed in the Parliament last year and to make MSP mandatory, it may consider giving away more subsidies in terms of prices of urea or electricity for the farmers.

Given the revenue compulsions in the Covid era FM Nirmala Sitaraman is not expected to announce any concessions in direct taxes with the dwindling revenues. Although some more alterations in the GST front may be given to boost demand of certain consumer good products. PLI schemes as well CAPEX incentives are likely to get a boost in the budget even at the expense of the fiscal deficit going haywire.

Even as revenue collections have started recovering in the latter half period after an initial decline in GST -in the first half of the fiscal year, showing a possible turnaround in the economy, yet the government has little resources to supplement its revenues. The disinvestment targets in the year was short 30 percent this year’s target and collections from telecom licence fees auctions also did not yield much. This budget the government appears to hike disinvestment target as it looks for mobilizing more funds. Along with this, the stock markets are at all time high and the government could use this opportunity to cash in through disinvestment of PSU stocks.

With these impediments the GDP is expected to turnaround although the consumption demand will take longer trajectory to come back to the pre-Covid levels. With this the fiscal deficit for FY 21 is expected to cross 7.75 percent as per sources, with the combined state and centre fiscal deficit feared to cross 12.5 per cent. But then as the FM said the Corona crisis was ‘an act of God’ and meeting fiscal deficit targets in this period of crisis will be the last thing in the government agenda. WIth this the budget is likely to be a shot of vaccine for the Covid-hit economy.