The virus was first confirmed in India on January 30, 2020, after a Kerala student returned from China’s Wuhan University. More Indian students from the Chinese university returned home with the virus in the following weeks. LokSabha passed the budget appropriation bill in the middle of March, 2020. By then, the World Health Organisation (WHO) had, declared (March 11) the coronavirus outbreak a global pandemic. However, the government did not reconstruct the budget for 2020-21, effective from April 1, on the basis of the possible impact of the pandemic on the economy.

The country's economic growth suffered its worst fall on record in the last April-June quarter. The gross domestic product (GDP) contracted 23.9 percent. The coronavirus-related lockdowns mainly weighed on the already-declining consumer demand and investment. Indian economy has since been witnessing unprecedented challenges. The biggest challenge before the government is to design the 2021-22 budget in a manner that will boost consumer spending.

Taxes need to be pruned across the table to make the country a low cost, high demand and high growth economy. Petroleum products need to be brought under the goods and services tax (GST) without any further delay. This will have a highly positive impact on the prices of all products and services. It may also be time to shut down all unproductive, over-staffed government departments to have a strict control over the non-plan expenditure. The size of the 2021-22 budget could be close to Rs. 37,00,000 crore. In the current state of economy, corporation tax, income tax, GST and customs levies put together may not be able to cover even 50 percent of such an expenditure.

The country needs a fresh economic reform that will be clearly intended to expand consumption, domestic production, services and employment. Consumption is the key. Higher consumption or demand will take care of the rest. The coming budget can play a significant role in boosting consumption by vastly reducing the tax rates. The government’s tax revenue collection may take a short-term hit. But, it is bound to grow substantially with the growth of consumption and supply. The country’s present level of consumption is too low for its size of population.

In the words of R C Bhargava, former bureaucrat-turned chairman of Maruti Suzuki, India’s biggest passenger car manufacturer-exporter, the only objective of government policies should be to increase the competitiveness of Indian industry so that it can make things at the lowest cost along with the best quality in the world. Bhargava said: "India has the capability to become a lower cost country than China if the industry and the government work together.” Can the national budget for 2021-22 provide a strong signal of the government-industry working together to make the country a truly low cost, highly productive economy? Can the next year’s budget make some radical changes in the tax structure to make it both the consumer and manufacturer friendly?

Take for instance the construction sector, a major source of employment. What message does the government want to provide by imposing 28 percent ‘sin’ rate of taxes on construction materials such as cement, steel, paints and plywood? High taxes are choking economic expansion. To cover the government’s revenue shortfall, the tax base needs to be widened. Unfortunately, that is not happening. The present tax structure goes against the government’s campaign for self-reliance or ‘Atmanirbhar Bharat.’ Stressed fiscal situation due to revenue shortfall needs to be tackled by a more judicious fiscal management than using high indirect tax rates that slow down demand or consumption and production.

Maybe, the government should seriously examine the pre-budget suggestions put forward by industry bodies such as CII, Ficci and Assocham and try to accommodate them if that helps industrial expansion and substantially improve consumption. For instance, CII has suggested the lowest or ‘nil’ slab for inputs or raw materials, a top slab of 5-7.5 percent for final products, and 2.5-5 percent for intermediate goods

The industry body has argued that the combination of such a measure will help industry integrate itself with global value chains and turn its goods and services competitive in world markets. Exceptions could be considered for a few products presently in higher slabs, accompanied by policy actions to boost domestic manufacturing through phased manufacturing programmes and production-linked incentive schemes. Routinely, the union finance minister had a series of pre-budget consultations with industry and business bodies and other stakeholders. Such consultations are seen more of a ritual than of any substantive value influencing the thoughts of the policy makers.

With a massive economic downturn for 2020-21 staring at the government, the pressure of a sudden high healthcare expenditure on account of vaccinating the nation to fight Covid-19 and the need for a sharp increase in the defence expenditure in the context of growing Chinese incursion threats are more likely to shape the government’s 2021-22 budget focus than looking at a bigger picture of the economy calling for a rapid expansion of the consumer base, industrial production and large job creation. However, making India a low-cost, globally competitive economy can no longer wait. (IPA Service)