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From income tax to rural development: 5 key expectations from Budget 2023

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From income tax to rural development: 5 key expectations from Budget 2023

 

The government will be tempted to announce populist measures in its last full budget before the general elections in 2024, but experts indicate that the announcements would be largely limited to fiscal consolidation and spending towards long-term growth.

There are huge expectations from the central government in the run up to the Union Budget 2023, which will be presented by Finance Minister Nirmala Sitharaman on February 1.

The government will be tempted to announce populist measures in its last full budget before the general elections in 2024, but experts indicate that the announcements would be largely limited to fiscal consolidation and spending towards long-term growth.

This is because multiple economic factors, including the possibility of a worsening global recession, have cast a shadow on the possibility of an expansionist budget.

Here are five key expectations from the Union Budget 2023:

Income tax relief

Like every year, citizens and experts have urged the government to provide income tax relief in the upcoming budget.

A few days ago, Finance Minister Nirmala Sitharaman said the BJP-led NDA government has not put any tax burden on the middle class, but at the same time, no measures have been announced in recent years to help citizens cope with higher inflation and sluggish income growth.

Tax experts have asked the government to increase deductions under common sections of the Income Tax Act – including Section 80C and 80D – applicable under the old income tax regime. Revamping tax slabs and lowering tax rates under the optional income tax regime are some other measures that experts and taxpayers have sought.

While the government lacks fiscal space to announce major tax reforms, it could announce some incremental measures to tackle a possible consumption slowdown in FY23.

Local manufacturing push

Local manufacturing is expected to get the biggest boost in the upcoming budget, with reports indicating that the government will include more sectors under the scope of its successful production-linked incentive (PLI) scheme. Some sectors like electronics and IT hardware manufacturing, which were already under the ambit of the scheme, may get higher allocation.

In Budget 2022, the government announced a total outlay of Rs 1.97 lakh crore towards the PLI scheme. It could increase at least 20-30 per cent in this budget as the government plans to ramp up local manufacturing to take on China and attract increased global investment.

A local manufacturing push would not only help the government create more jobs, but also uplift India’s status as a global hub for goods production – a crucial step in creating a concrete pipeline for long-term growth.

Rural and welfare spending

Data from previous pre-election budgets show that governments usually shift focus to rural and welfare spending. India has witnessed a similar pattern in its last two pre-election budgets.

A recent Goldman Sachs report also highlighted that more money will be allocated towards welfare and rural spending ahead of the general elections in 2024.

“Given the general elections scheduled to take place in 2024, we expect the government to increase rural and welfare spending as seen in pre-election budgets,” Goldman Sachs said in the report.

Big spending on infrastructure development

Like every pre-election budget, infrastructure could also feature strongly in the government’s financial plan for the next financial year. Since infrastructure is a big driver of growth and creates jobs, the government may not shy away from announcing a higher allocation this year to tackle growth challenges in FY24.

B Gopkumar, MD & CEO, Axis Securities, said, “The primary focus of the budget is likely to be on job creation and investment-driven growth. Measures to stimulate rural spending and infrastructure development would be the highlight in the budget.”

Green energy boost

Climate change has gained prominence across most industries and the government may not hesitate to boost spending towards promoting sustainable energy resources. The government could announce new schemes and incentives to promote renewable energy sources, as the country remains committed to achieving net-zero emissions by 2070.

Fiscal incentives, higher funding and tax rebates are some measures that the government could announce to prompt greater private participation towards the cause.

 

 

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