EditorialA tightrope walk indeed!

A tightrope walk indeed!

Date:

Union Finance Minister, Ms Sitharaman will have to walk a tightrope to balance growth momentum with inflation, which is still at
uncomfortably high levels, owing in part to the global economic situation. With Europe in recession and a difficult geopolitical
situation resulting from the prolonged Russian-Ukraine war, Indian industry can expect some handholding, with export growth
not expected to be particularly strong.
While every segment of society expects some sort of relief because they were all hard hit during the two years of Covid, no
one is willing to accept the government's difficulty in raising more resources to meet their demand. Given the impending
elections, she cannot afford to be harsh, especially to the middle-class. Certainly, the BJP government, or any government for
that matter, does not have a magic wand or a milching cow to collect additional revenue in order to present a that
pleases everyone.
Some genuine concerns may be addressed partially, but the government cannot abandon revenue mobilisation efforts in the
face of the need for fiscal prudence, meeting high food, fertiliser, and fuel bills, and, more importantly, pushing up public
spending to maintain the growth momentum. 's tax-to-GDP ratio remains significantly lower than that of advanced
economies. However, high growth allowed for some tax mobilisation efforts. Both indirect and direct tax collections are up this
year. Direct and indirect tax collections increased by around 40% in Covid year, reaching over Rs 27 lakh crore in 2021-22.
Overall growth has been strong from 2023 to the present, with the government covering more than 85% of budget estimates
through December 2022. Direct tax collection has increased by nearly 25%, while indirect tax collection has increased by about
20%. This is a positive trend. However, revenue recovery efforts from disinvestment have been disappointing thus far.
In addition, there is a valid reason to increase spending in the face of a belligerent China on the northern and
eastern borders. Military spending was increased by 10% in the 2022-23 budget to Rs 5.25 lakh crore. Because of the Chinese
attitude and the difficult Indo-Pak relations, the defence budget would be significantly increased this time.
As it stands, India's food subsidy bill is very high because the government made the correct decision to provide food rations
during Covid to 80 crore people, some of whom lost their . This food ration has already been extended until December
2023 under the Garib Kalyan Yojana.
The middle-class and salaried classes suffered the most during Covid, as many lost jobs or had their pay cut, while having
no safety net to fall back on. They are going through severe hardships, that too with high inflation. Senior citizens were hit the
hardest, with bank interest rates falling and their savings eroding due to increased medical expenses during Covid. For them,
it's been a double whammy. Sitharaman has stated that she comes from a middle-class family and understands their plight
better.
It is still unknown whether Sitharaman will lower income tax rates, despite the fact that they
have been broadly rationalised. At most, minor changes may be made here and there. What is
expected is an increase in the exemption limit, so that lower-wage salaried workers, middle-
class families, and senior citizens who rely on pensions and interest on savings can get some
relief. Sitharaman may provide some additional tax benefits on housing loan interest to
stimulate the real estate sector, which is struggling. With the gradual phase-out of work-from-
home in service industries in vogue during Covid, the amount of standard deduction could be
raised to benefit urban and salaried middle-class workers. Capital gains taxation could also be
rationalised. Corporate tax rates may not be reduced significantly, despite popular demand
from chambers and industry. However, specific tax breaks may be available as private sector
investment increases. PLI schemes, for example, could be expanded to include more industries.

Northlines
Northlines
The Northlines is an independent source on the Web for news, facts and figures relating to Jammu, Kashmir and Ladakh and its neighbourhood.

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