With COVID-19 pandemic still wreaking havoc across the globe, market players would want the Centre to take steps to generate demand and revive the economy
Budget 2022: A hike in taxes, whether direct or indirect, could lead to decreased profit margins for producers and even result in lower growth rates. Reuters
As the presentation of the Union Budget 2022-23 nears, people are waiting to see what measures will be announced by Finance Minister Nirmala Sitharaman on 1 February.
With Omicron still wreaking havoc across the globe, there is unease regarding the growth of the Indian economy and if it will be curtailed by further lockdowns and COVID-19 restrictions. There is also speculation about which sectors the Finance Minister will focus on in order to revive the economy.
As the date of the Union Budget 2022 nears, here’s how it will affect the market and economy:
The Budget is the annual financial statement of the estimated receipts and expenditure of the government in a particular financial year. The Budget impacts the fiscal deficit, which is the gap between a government’s income and expenditure. This, in turn, influences the interest rate in the economy. A larger fiscal deficit leads to a higher interest rate, which means that borrowing becomes more expensive for the private sector.
The aim of any government is to maintain a balance between its income and expenditure. With the pandemic and the resulting economic downturn, the government’s move to cap its fiscal deficit was set aside. In FY21, the fiscal deficit reached an all-time high of 9.21 per cent of the gross domestic product (GDP).
The upcoming Budget could see the government try to enact policies to slowly bring the fiscal deficit down. As per reports, the deficit is likely to be at 6.8 per cent of the GDP this fiscal.
The Budget also affects public expenditure, as measures like a hike in indirect taxes could decrease demand and slow down production. A hike in taxes, whether direct or indirect, could lead to decreased profit margins for producers and even result in lower growth rates.
What are some expectations of the market from this year’s Budget?
The markets expect the Union Budget 2022 to focus on allocating resources for development of micro, small and medium enterprises (MSMEs) and the rural economy. According to Business Standard, there is also hope that the Centre could announce a substantial increase in public expenditure.
The primary focus should be on generating demands to bring energise the economy.
More supportive schemes are also expected for the agrarian, manufacturing and healthcare sectors. The markets are also expecting tax relief to the salaried class, revised tax slabs, increase in tax exemption for home loans.
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