Grant Thornton's recommendations for the Union Budget 2021

India’s Union Budget 2021 will be unveiled tomorrow. In the run up to the annual milestone, Grant Thornton Bharat polled executives and business owners to understand what they believe should be some of the key topics to address in this year’s budget. A roundup of the key recommendations. 

The mid-January survey threw up a number of interesting perspectives – most notably a sense of optimism around India’s economic prospects and a call for strong policy measures to drive the post-pandemic recovery.

“The adverse economic impact of the pandemic has been felt by everyone, be it large corporates, micro, small and medium enterprises, start-ups and individuals. The Union Budget 2021 should unveil bold policy and administrative reforms to propel the economy to its pre-pandemic growth levels,” noted Vikas Vasal, National Managing Partner for Tax at Grant Thornton Bharat.

Business executives have echoed this sentiment, and most have a clear idea of what the economy needs. For nearly 70%, funding large infrastructure projects is at the top of the list. The 2019 Union Budget already laid out substantial infrastructure reforms, although most corporates feel the need to brush this up.

A product of Covid-19: more than half the respondents also stressed the importance of boosting consumption in India. Lockdowns changed consumer behaviour in lasting ways, while job losses and a global recession have curbed spending to a large extent. In similar vein, priority number three among executives is to generate employment through government spending.

Also in focus is a boost for India’s manufacturing sector. Policies such as the 2014, Make in India scheme have already been targeting manufacturing and export boosts for years. For many this has become all the more urgent following Covid-19, as the global business environment looks for a viable alternative to replace a high-risk China in its supply chain.

Many want the government to use the 2021 Union Budget to bolster Make in India financing, incentivise manufacturing and draw foreign direct investment (FDI). And there is an expectation that manufacturing will hold key ground in the upcoming statement, although few expect it to take the top spot. 

Indeed, more immediate factors are expected to influence the composition of budget investments. With farmer tensions rising by the day, agriculture is in urgent need of attention, while the pandemic has left the healthcare & pharmaceutical industry stretched to dangerous levels.

These two sectors will likely draw the most thrust come Monday, followed closely by manufacturing, industrials and infrastructure. Other segments such as education, consumer retail, automotive, financial services and real estate – to name a few – will also feature.

Funding its plans?

The question remains: how will the government fund this impetus? Indeed, India’s fiscal deficit has climbed to around 7% according to reports, driven by the pandemic-induced economic contraction. In the backdrop, the government introduced heavy cuts to corporate taxes – particularly in manufacturing – back in 2019, with a view of boosting business activity and investment.

Pushing these rates back up could deliver much-needed revenue, although survey responses show this to be a highly unpopular solution. Well over half of executives want tax rates to stay as they are, while an additional 40% actually want a further cut. According to Vasal, there are other avenues for the government to pursue.

“To garner more resources, a combination of measures, such as PSU disinvestment, further opening up of the economy for foreign investment, developing bond markets and funding large scale projects through innovative financial products, may be considered, along with a relatively higher fiscal deficit, which is justifiable under these unprecedented circumstances.”

A more active economy this year should help things along as well. In fact, 60% of respondents to Grant Thornton’s survey state that India’s economy is back on a growth path, with less than 30% expecting growth to take some time. The expectation among nearly 70% is that infrastructure spending and consumption are both due to increase this year, giving the economy some momentum.

In the mean time, the budget might well lay down concrete channels for an economic recovery. “A roadmap that will attempt to sustain the double digit growth expected in FY22 (because of base effect) until at least end of the decade, is what this budget ought to lay out. With anything less, our potential will be underachieved,” said Vishesh Chandiok, CEO at Grant Thornton Bharat.

These are the corporate expectations. According to Vasal, many of these will likely manifest in the budget, given that Finance Minister Nirmala Sitharaman has held myriad stakeholder consultations to prepare what she promises to be a “budget like never before.”