The disruption that the pandemic has ushered in requires no explanation, as one can find its direct repercussion in the form of a massive global financial contraction. Amidst these uncertain times, wherein India has rolled out vaccination in a phase-wise manner coupled with Union Budget providing the right growth impetus – the question resounding is whether these factors will kickstart India’s economic recovery.
The economic deprivation due to the COVID-19 pandemic was unparalleled in the history of the entire world. While the scope of damage has reflected unfavourable impacts from every aspect, its influence was also imminent. To provide relief and infuse optimism to the nation, the government announced the Budget to prompt recovery. The first-ever digital, paperless Budget presented after the pandemic outbreak aimed to create a holistic environment of growth- starting from MSMEs to other impacted sectors like hospitality, with a nudge to promote the Atma Nirbhar Bharat vision.
The COVID-19 Vaccine And Indian Economy
Backed by the vaccine drive, economists contemplate that the Indian economy might return to a growth of 11% in 2022 after a record 9.4% contraction in FY20-21. As per the International Labour Organization (ILO), India may witness an economic recovery after kicking off the nationwide immunisation program. The report further analysed that the pandemic’s impact has slashed 8.8% of global working hours, leading to a decline in global labour income equivalent to US$ 3.7 trillion – roughly 4-times than the number lost during the 2009 global financial crisis.
Health experts believe that the vaccination drive might additionally help the economy with more people rejoining the workforce. Since the nation has already witnessed a massive decline in the effectual demand, it is imperative to bring back the informal economy workers to earn their livings and reinvigorate the economy.
How Promising Has The Budget 2021-22 Been?
With the theme of building a self-sustainable economy, the Budget also focused on digitising the economy. Though it served as a solution to the health crisis and gave financial support to bring back the livelihoods on track, it did not stand on the much-anticipated tax slabs reduction expectations.
Aimed towards making the country self-reliant, the Budget focussed on boosting healthcare capacity and strengthening infrastructure to bolster the economy. Besides the allocation for the COVID-19 vaccine, the Atmanirbhar Swasth Bharat Yojana can turn into stepping stones for the health infrastructure.
To build a robust economy, emphasising and expanding the export capabilities for local businesses remains prudent. The Free Trade Agreement (FTA) that India signed up with ASEAN in 2010 has been going strong with the “Act East Policy” and allocated enormous sums for projects like Kaladan Project with Myanmar and Agartala Akhaura Link with Bangladesh. An increased focus on manufacturing and infrastructure to uphold the self-resilient vision, a visible hike in capital expenditure, and the launch of MITRA (Mega Investment Textiles Parks) to promote employment has provided the right growth stimulus to the nation.
Additionally, an increase in the FDI limit for the insurance sector from 49% to 74%, an increased focus on investor protection, and the launch of securities market code (that will include the SEBI Act, the government Securities Act and the Depositories Act) are bound to attract capital flow. The tax audit turnover limit of Rs 10 crore for taxpayers carrying their business transactions digitally was a prodigious development. Among the government’s efforts to revamp the industry’s functionality are a dispute resolution committee to settle income tax disputes of small and medium taxpayers, a board for advance rulings to provide tax certainty to foreign investors, and faceless assessment and appeals will revamp the industry’s functionality.
To promote investments, the government has exempted the tax withholding on dividends paid to REITs and InvITs and allowed lower tax rates for tax withholding on dividends to be paid to FPIs. Besides extending the income tax holiday for startups by a year, India has incentivised investments in IFSC, such as tax exemption for aircraft lease rentals and tax incentives on foreign funds relocation.
The sudden collapse of the economy immediately after the global supply chains shut down has taught a valuable lesson about the perils of over-dependence on international trade. Having endured one of the most challenging financial years in the recent past, India focuses on building resilience. Whether it is creating a war chest for medical expenditure, vaccine reach-out, “building resilience” seems to be the need of the hour while the journey of recovery begins. Consequently, it is not surprising that the economic impetus strengthens the nation and puts India on the road to recovery.