Expectations of a common man from Budget 2020

Expectations of a common man from Budget 2020
The “Aam Aadmi” or the common is an important constituency for the government, both politically and economically. Political significance is self-explicit but their economic significance cannot be underestimated. Sectors like automobiles, FMCG and rural goods took a big hit as the common man decided to stay away. In the last few quarters, GDP growth has fallen, joblessness is rampant and inflation is close to 7.5%. The Finance Minister realizes that the common man needs more than his share of antidotes to counter the spreading poison of weak growth and high inflation. Here is what could be the budget agenda for the common man.

Time to tweak income tax slabs

Weak growth and high inflation combine to form a steep tax on the common man. So, some tax relief is definitely called for. The budget could make incomes up to Rs5 lakhs fully tax-free and do away with convoluted rebates. There has been a general demand to reduce the tax to 5% for incomes up to Rs8 lakhs and cut tax rates across the board by 5%. The government will have to build all this within its resources constraints. It is time to offer standard deduction as a flat deduction rather than in lieu of other allowances.

Much needed relief on Section 80C

The limit of Section 80C has remained static at Rs150,000 for a long time now. The list needs an expansion as does the limit. The government may look to hike the limit to Rs3 lakhs against actuals. In addition, some new categories like debt linked savings schemes will also allow conservative investors to get tax breaks. To encourage social security planning, the budget can enhance the special exemption to Rs1 lakh for retirement products and club NPS, pension MFs and pension policies under the ambit.

Let housing drive asset creation

The exemption under Section 24 on interest on home loans has remained at Rs2 lakhs and is increasingly looking impractical. The government can either look to increase the limit to Rs4 lakhs or to offer the special time-bound exemption to all home purchases and not just low-cost housing. This can have a catalytic effect on spending and on economic activity due to the strong externalities that housing has.

Time to scrap tax on long term capital gains

For an individual investor, long term financial planning has been akin to religion. It has economic and sentimental value. However, the pitch has been queered by the introduction of the 10% tax on long term capital gains in Budget 2018. This makes long term planning less viable and becomes a kind of double taxation since securities transaction tax (STT) is already paid on equity market transactions. Scrapping LTCG tax will not only encourage the equity cult but also ensure that people can focus on long term wealth creation.

Big steps to tame inflation

Like Caesar’s wife, it is not enough for the government to work on inflation. They must be seen to be working to control inflation. Budget 2020 can look to cut GST rates on consumer goods, food products and durables of daily use. Taxing white goods at the same rate as cigarettes is not great economics. Then, there are structural issues. Vegetable inflation in the range of 40-60% is hardly sustainable. The best way to address this issue is by investing in post-harvest infrastructure, warehousing, etc. These can go a long way in addressing the structural aspects of inflation and give comfort to people at large.

Time to make loans cheaper

Making loans cheaper will have a double impact on inflation and consumption. Firstly, cost of funding has a major impact on corporate cost structures and this has gone up sharply in the last couple of years. The NBFC crisis has made access to credit tough and that has also impacted demand for a plethora of consumer products ranging from durables to cars. By forcing rates lower, the budget will hit two birds with one stone.

And, finally some miscellaneous ideas

There are some additional measures that can make life easier for households. The medical contribution limit under Section 80D can be enhanced to reduce the medical risk for families. The leave travel allowance (LTA) is restricted only to domestic travel. With lakhs of Indians travelling abroad for holidays, foreign travel can also be permitted, albeit within limits. The budget must also explore re-introduction of tax breaks for infrastructure bonds and specified mutual funds to help people save tax and build their investments.

Tough times call for drastic measures and that is the need of the hour. Don’t be surprised if the common man is the central focus of Union Budget 2020!

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