Budget 2022: Where on one hand there is a desire to become a 5 trillion dollar economy by 2025. On the other hand, once again due to the increasing cases of corona in the country, there is a risk of lockdown and challenges posed by the supply chain. The Finance Ministry, therefore, has a challenging task of addressing these risks and concerns and presenting a viable budget on 1 February 2022.
Private sector capacity utilization is still below 70 per cent and is unlikely to pick up at least for the next one or two quarters. In such a situation, the government needs to continue spending to boost consumption and demand.
The government should aim to raise funds through foreign direct investment (FDI), asset monetization and disinvestment to cover its fiscal deficit for the next budget year. On a large scale, promotion of manufacturing, textiles and infrastructure sectors will also generate employment. Also, they have an impact on many ancillary industries including MSMEs. In such a situation, priority should be given to these sectors in the budget.
According to me, the Finance Minister needs to focus on 6 sectors or industries in the upcoming budget to make India’s economic dream come true. The following are the expectations from my budget regarding these sectors or industries-
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1. Incentives to Home Buyers
Along with generating employment, the realty sector also supports many small and medium industries. The increase in demand for residential homes or commercial properties will indirectly benefit the allied sectors. Right now home loan rates are quite low, so this is an opportune time for home buyers. The existing limit of tax benefit on payment of interest or repayment of principal on home loan should be further increased by Rs 50,000 to Rs 2 lakh and Rs 1.5 lakh, respectively.
2. Focus on converting household savings into financial assets
To fuel growth, our economy needs investment. Investment can either come from FDI or by linking household savings to the mainstream economy. The process of investing in financial assets should be made simple, so that one can invest easily. Also, there should be a centralized KYC process for all financial assets. Increasing the limit of tax saving mutual funds from Rs 1.5 lakh to Rs 2 lakh will also be a positive step in this direction.
3. Emphasis on Financial Literacy and Personal Finance
About 17 percent of the world’s population lives in India, out of which 65 percent of the population is below 35 years of age. But still the financial literacy rate here is only 24 percent. Personal finance in school should be a subject that can form a foundation for citizens who can channelize savings into investments and create wealth for themselves and the economy. Policy guidelines will be a welcome step in this direction in the upcoming budget.
4. Promoting Fintech Companies Connecting Populations That Are Out of Bank’s Reach
A huge population of this country is still out of reach of banking services. Many fintech companies are reaching out to these populations with the help of technology and other tools to provide formal services such as microcredit and lending. It is doing a great job towards financial inclusion. Steps like tax incentives, easy access to funds for this sector would be welcome.
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5. Reduce Lock-in Period for Sovereign Gold Bond (SGB)
SGB was launched with an aim to reduce the demand for purchase of physical gold and transfer of household savings into financial savings. Reducing its lock-in period from five years to three years and availing LTCG on exit after three years will put money back in the hands of households and individuals. This will help in increasing the circulation of money in the economy which will lead to more consumption and investment.
6. Removal of Commodity Transaction Tax (CTT)
India is one of the largest markets for various commodities including physical gold. In such a situation, instead of accepting the price, it has the ability to re-fix it. Following the implementation of the Commodity Transaction Tax (CTT), there has been a sharp drop in volumes on the exchanges and many traders have shifted their base to other locations such as Dubai. We now have a wide range of financial instruments including Bullion Index, Options Contracts, Delivery Centers and Warehousing Facility and the recently announced International Bullion Exchange. In such a situation, waiving CTT will bring substantial participation and volume in the Indian markets and the tax generated will be much higher than the income after imposition of CTT.
The Indian economy ranks third in terms of purchase power parity (PPP) and is growing at 7%. There are around 800 million internet users in the country and 65% of the population is below 35 years of age. India is standing in a very good place right now. I hope the upcoming budget will be a budget to prepare India for the way forward and to fully unleash its potential in the years to come.
– This article has been written for Moneycontrol by Jaiprakash Gupta, the founder of Dhan. Jay has over a decade of experience in Capital Markets.
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