Union Budget 2021 expectations: Budget 2021 will be in front of us on 1 February. This year the budget has become more important with the rapid changes in the market. Investors are also seen in alert mode before the budget. Every day a new development is unfolding. This increases the importance of how dynamics are changing and what the stock market is expecting from this year’s budget.
Keen on fiscal deficit
- In FY 2021 and even FY 2022, the main focus of the budget will be around the fiscal deficit figures. Whether government spending is cut or not. Frankly speaking, it is going to be much higher than expected.
- Last year, the fiscal deficit was 3.8 per cent compared to 3.6 per cent of the market. It can be said without saying that this year it will be up 3.8 percent. A few months ago, the market was expecting it to be around 8 per cent. However, this figure has now come down to 6.5 percent to 7 percent.
- In terms of growth in FY 2021, nominal GDP is expected to grow from 14 per cent to 15 per cent. Whereas real GDP growth is estimated to be around 9 percent to 10 percent. Inflation is estimated at around 5 percent. Therefore, a good growth rate is expected next year.
- However, in fiscal year 2022, the fiscal deficit is going to be more. The expectation is around 4.5 percent to 5 percent. As long as the deficit is 7 percent in FY 2021 and 5 percent in FY 2022, the market will react positively. Since we are coming out of the epidemic, government spending is the need of the hour. People do not expect any cuts on this front.
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What is the market expecting?
Infrastructure
The government’s first focus will be on infrastructure. The government can continue to focus on building infrastructure. There is little possibility of any deduction on capital allocation in FY 2021. In FY 2022, significant expenditure on infrastructure is expected. There is also a possibility of additional expenditure for the National Infrastructure Pipeline in the budget.
(Housing- PMAY)
There can be maximum allocation in Pradhan Mantri Awas Yojana (PMAY). The emphasis will be on implementing it. To promote this initiative, the government can increase the interest rebate on housing loans for its occupied property. This can possibly be increased from the current limit of 2 lakh rupees.
Rural and Agriculture
There is a constant emphasis on rural and agricultural sectors. Therefore, we can see more budgetary allocation for rural area. Some new provisions can be made for the agricultural sector.
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(Income Tax)
On the personal income tax front, there is a possibility that the government may restructure tax slabs and deductions under Section 80C. However, the government does not have much fiscal space to do so. This will focus more on the spending side.
Manufacturing
In the manufacturing sector, the government can continue production-linked incentive (PLI) schemes for more and more sectors. This has already happened in the Self-Reliant India Campaign 2.0. Duty may increase for imported goods like electronics, tires etc. Various goods are also attracting very low import duties. The government can also impose import duty on them. The wider focus will be on promoting domestic manufacturing.
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Cess and surcharge
The government may impose additional cess or surcharge to increase its revenue. COVID-19 is going to cost a lot. A framework will be prepared for the COVID-19 vaccination program. In such a situation, the surcharge may increase or a COVID cess can be included in this year’s budget. Such cess and surcharge will target people earning above a certain threshold limit. If such cess comes, then it can be recovered from one year to two years.