- Date : 28/01/2022
- Read: 4 mins
2021 was dubbed as India's "pandemic budget." As this year's Budget nears, we find ourselves in the middle of the third wave. How much will this impact Finance Minister Nirmala Sitharaman's plans for economic recovery?
COVID-19 has impacted economies the world over. According to the International Monetary Fund (IMF), the global economy contracted by 3.1 per cent in 2020 due to the pandemic before recovering by an estimated 5.9 per cent last year. The trajectory of this recovery, however, is fraught with risks such as new variants of the coronavirus and rising inflation due to supply restrictions across the world.
India, too, has been recovering steadily from the unprecedented challenges posed by the pandemic, such as economic contraction in 2020, high unemployment, and business disruptions because of lockdowns, thereby putting strain on the banking and financial system. While the IMF expects India's growth to be 9 per cent in 2022, uncertainties surrounding the pandemic and the economy will continue to pose risks for households and businesses. And that's why Budget 2022 will be crucial, especially if it charts the course away from short-term responses to the pandemic to more long-term growth measures.
Pandemic's impact on the health sector
The health sector continues to be a priority. As of October 2021, the Centre's expenditure on immunisation was expected to top ₹50,000 crore, higher than the estimated ₹35,000 crore. Now with precautionary doses and vaccination of those below 18 years involved, this spending is likely to go up.
More concessions and stimulus for the health sector are expected, especially in terms of providing a boost to healthcare investment and infrastructure.
Backing Indian start-ups
Like all businesses, even start-ups experienced disruptions caused by the pandemic and restrictions that followed. According to Traxcn, a global platform tracking start-ups, funding for the industry plummeted 29 per cent to $4.2 billion in the first half of 2020, creating worries about long-term viability. However, in the second half, $7.2 billion was pumped into the ecosystem, paving the way for growth. There has been no looking back since. By June 2021, Indian start-ups raised another $7.2 billion. Even jobs in the industry grew by 14 per cent in the first year of the pandemic, as per government data.
Things are looking up for this sector in 2022. Experts hope that the government continues to back Startup India, an initiative announced by Prime Minister Narendra Modi in August 2015, by encouraging innovation and entrepreneurial growth. More focus on start-up infrastructure development and job creation is expected, along with a reduction of GST for new businesses.
Will there be lesser taxes?
Due to the disproportionate impact of COVID-19 on earnings, India's tax pie appears to have experienced some change. Indirect taxes, which primarily consist of charges on products and services as well as import duty, increased in 2020, while direct taxes, which include corporate and personal income tax, decreased. Although the government has not revealed direct and indirect tax collections, industry sources claim that the percentage of indirect taxes in total tax collections increased to over 56 per cent, the highest level in over a decade. This comes after a dramatic drop of 26 to 27 per cent in direct tax collections.
In the year 2020-21, the government's provisional Gross Tax Revenue collection was ₹20.24 lakh crore despite the fall in GDP. This was partially due to rising global oil prices, which in turn pushed up revenues from taxes on fuel.
Like every year, the taxpayer expects relief on income tax, hoping that the exemption limit is increased to ₹2.5 lakh in Budget 2022. It was last changed in 2017-2018, so a revision is likely this year. For economic recovery, tax incentives to encourage private investments are predicted.
Push for housing?
Job losses and salary cuts during the pandemic impacted residential real estate. With more and more companies adopting the work-from-home model, commercial real estate was also hit. But after a setback following the first two waves, real estate is seeing a rebound.
In 2021, house sales in India's top seven cities were back to 90 per cent of pre-pandemic levels. A fall in home loan rates provided some boost to the residential housing market. In the last Budget, there were stamp duty cuts and tax benefits extension on affordable housing. Budget 2022 will only provide more relief by hiking tax rebates on housing loans and putting weight behind affordable housing.
The ongoing third wave triggered by the Omicron variant is unlikely to create roadblocks in economic growth or disruptions in India's financial plan for the coming year. However, state elections are going to be on top of Finance Minister Nirmala Sitharaman's mind. Budget 2022 is also likely to focus on development and infrastructure. Will it meet expectations? One has to wait and watch.