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Budget 2021: Expectations

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Disclaimer: All opinions presented below are speculative and are not meant to be taken as any form of financial advice.

On February 1, all eyes will be focused on the Lok Sabha as the Finance Minister, Nirmala Sitharaman, is going to present one of the most consequential budgets presented by the NDA. As to what we can expect, the direction is clear, but the exact details are left to speculation.

We know that the NDA government has been pushing disinvestment, privatization and opening up the market to foreign investments since its inception. This budget will be a work on similar lines, but we have reason to believe that the present circumstances will clearly be a stronger thrust in that direction.

During the pandemic people lost jobs, incomes fell, and naturally demand and consumption slumped. These are expected to recover soon with the vaccine rollout, yet government spending and tax cuts in the right sectors could help speed up recovery.

One sector likely to see higher government investment is the health sector, by some estimates a doubled investment in the sector. Certain other sectors might find government disinvesting from its PSUs. This is expected to increase the fiscal deficit of the government, and we might see the fiscal deficit rising upto as much as 5.6% of GDP.

As small and informal businesses contribute significantly to our economy and were also amongst the hardest hit, a targeted scheme to help these enterprises would boost the aggregate demand.

Construction and housing are some of the largest job-creating sectors for unskilled workers, so supporting residential housing projects would boost employment. This can also be supplemented with the National Infrastructure Pipeline (NIP) to create more jobs. This would automatically give impetus to other industries like cement and steel.

“We can certainly expect new social security schemes, especially for marginal farmers.”  says Harshita Magroria, Leader of Team India of The COVID-19 Localisation modeling group, based in London, “There is also an urgent need to address the rising prices of white goods [like washing machines, refrigerators, and other domestic appliances]”.

Lastly, the government may also have to work to improve the financial system to allow more efficiency for businesses.

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