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Jan 31, 2021

Hit Hardest by the Pandemic, What Can the Common Man Expect from the Union Budget?

While some direct relief may be on the cards, it is unlikely to be huge, considering the government has its own set of macroeconomic challenges, in wake of COVID-19 pandemic.
People wearing protective face masks stand in a line to enter a metro station amidst the spread of the coronavirus disease (COVID-19), in New Delhi, India, September 14, 2020. Photo: Reuters/Anushree Fadnavis

In India, the Union budget is a televised affair, with specific announcements designed for political optics and how they will be played up on the front pages of newspapers the next morning.

One wonders whether even one of the numerous announcements made on Budget day brings any excitement for the common man – an employee working in the informal sector, a millennial graduate who is looking for a new job, or a retired employee.

Indeed, the excitement is reserved for all analysts who are immersed in number crunching and hastily preparing reports to be delivered to their clients. Businessmen fall somewhere in the middle, with their eyes only on specific announcements.

Also read: Analysis: Making Virus Crisis Budget, India Needs to Spend but Funds May Fall Short

The forthcoming Budget is to be announced after the Indian economy and its citizens have been roiled by the COVID-19 pandemic, with the lingering concerns of the pandemic still prevailing amidst the roll-out of the vaccine.

While obviously important, the common person is not interested in the government’s fiscal deficit numbers, its estimates of the country’s national income, disinvestments, capital expenditure and market borrowings programmes. What matters are purely tax-saving announcements and price pressures via tax hikes.

Let’s simplify things for the common man as to what one can expect from this year’s Budget.

What’s on the cards? 

Firstly, media reports indicate that a COVID cess may be on the cards. A cess is a tax with specific purposes and time duration, and the COVID cess will likely be announced to garner revenues for spending on vaccination. This is likely to pinch the pockets of the consumers as it will be applicable on all purchases.

FILE PHOTO: Finance minister Nirmala Sitharaman holds budget papers as she leaves her office to present the federal budget in the parliament in New Delhi, February 1, 2020. Photo: Reuters/Anushree Fadnavis/File photo

Secondly, import duties on some commodities, especially finished commodities, like electronic goods, furniture, and electric vehicles, are likely to be hiked under the broad theme of pushing for local manufacturing. Here again, consumers who are likely to incur such discretionary spending could have to shell out more.

Third and fourth are the most important things which the common man looks out for – tax exemptions and deductions. These are extremely important as individuals have faced the wrath of the pandemic in the form of job losses and pay cuts which has reduced the purchasing power.

At the same time, the revenues of the government have been strained owing to the nation-wide lockdown, which stopped economic activities, and this further act as an obstacle to announce tax relief measures.

In the previous Budget, the finance minister had allowed the individuals to choose between two tax regimes with the newer one offering lower taxes amidst no investment deductions. Although this added to the complexity in an already prevailing labyrinth of the income tax, individuals will expect easier relief measures like – increase in the income tax exemption limit from the current Rs 2.5 lakh to Rs 5 lakh, increase in the standard deduction from the prevailing Rs 50,000 to Rs 75,000 or hike in the popular 80C deduction limit. Nonetheless, any tax relief measures will be in the form of a token rather than with an objective to propel disposable income.

Also read: Budget 2021: Nirmala Sitharaman’s ‘Stress Test’ and Macroeconomic Challenges Ahead

The fifth aspect is the relief measures for the senior citizens, who are already earning meagre returns from their deposits. Barring some tax breaks on the interest income from the Senior Citizen Savings Scheme, it is highly unlikely that any specific tax exemptions will be announced.

Sixth, jobs – a graduating millennial and many unemployed individuals will lookout for a job scheme in urban areas akin to the rural job guarantee scheme of Mahatma Gandhi Employment Guarantee Act (MGNREGA), which witnessed a sharp increase in allocation during the pandemic.

A recent Centre for Monitoring Indian Economy (CMIE) survey highlights the fall in the per capita urban household income was sharper than the rural household and incomes have still not touched the pre-pandemic levels. This is worrisome and therefore expectations will be high on this front.

However, there have been some announcements already made by the government. In November, there was subsidy support in the form of provident fund payments to companies to boost employment and this can be extended from its current deadline of June 2021.

The government will also focus on infrastructure spending, which has positive externalities of job creation, but this is not what the common man will note because of the skilled-unskilled demand-supply mismatch.

Seventh is cash transfer that is unlikely to be announced barring the pre-existing transfers to the farmers, which could see a gradual hike. Lastly, the 130 crore population will also be hopeful of free vaccination against COVID-19 with the burden being shared by both Central and state governments.

Just before any Budget, the hype is understandable and the common man also joins the bandwagon of expectations from various interest groups. Given the prevailing challenges at the individual level, expectations of easing tax burden, transfers, more disposable income, jobs will be sky-high, but the same will have to be moderated by individuals as the government is constrained with its own set of macroeconomic challenges.

Sushant Hede is an associate economist at CARE Ratings Limited. 

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