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Budget 2020: Relaxation in income tax, bailouts expected to boost demand, economy

Amitava Chakrabarty
Budget 2020, Budget 2020 India, Union Budget 2020, Budget 2020 income tax, Budget 2020 income tax rate, economic growth, rural demand, FMCG sector, automobile, real estate, telecommunications, aviation, banking, NBFC

Union Budget 2020: India is the second most populous country in the world with over 125 crore population, yet the country’s rate of economic growth is slowing down due to lack of adequate demand. So far demands from the country’s vast rural areas used to remain unaffected by global economic issues, but this time dip in rural consumption hits even the evergreen FMCG companies apart from other industries, demands for which fluctuate with economic cycles.

Although, most of the rural people, who are facing the financial crunch, are poor and are out of income tax net, but there are wide expectations that some relief in income tax front may be given in the upcoming Budget to make more disposable income available in the hands of taxpayers to boost demands.

"There is an imminent need to revive consumption due to the current slowdown. So, income tax cut or a change in the tax slabs for the middle-income bracket might be down the line," said Bala Parthasarathy, CEO and Co-Founder, MoneyTap.

As most of struggling rural people are out of tax net, apart from relief in income tax, more stimulus would be needed to revive the rural demand.

"Apart from this, the government will try to stimulate rural spending through sops," said Parthasarathy.

As several sectors like automobile, real estate, telecommunications, aviation etc are facing hardship due to demand crunch and other issues, relief to such companies along with NPA-hit banking sector may also get some relief in the upcoming Budget.

"Bailouts packages are expected in the automobile, banking, real estate, telecom, and aviation sectors," said Parthasarathy, adding, "The automobile sector is also facing high pressure, hence, the government might launch targeted schemes to make vehicle ownership easier."

"We can hope to see relaxed regulations and subsidies for the real estate industry," he further said.

However, Parthasarathy thinks the domestic e-commerce industry needs protection to flourish. "The e-commerce segment might face tight FDI rules to create more space for the homegrown brick-and-mortar stores," he said.

To revive the economy, the government should provide incentives through the Budget to both private and public sectors as well to NBFCs, which are facing liquidity crunch.

"We’ll also see aggressive investments both in private and public sectors. And there will be further financial consolidation for cash-strapped NBFCs," said Parthasarathy.