The Budget Should Cut Taxes to Stabilise the Economy, Increase Jobs and Consumption

With all eyes on the budget session in February, the government should look at the long-term plans to increase consumption and production along with job creations, says NANTOO BANERJEE.


IT is time to deliver a budget like never before.

This fiscal, India has recorded the biggest economic de-growth since independence. The budget for 2021-22 must focus on a specific road map to stabilise the economy, increase consumption, grow employment and compress government.

Reality should rule over rhetoric.

The business and the industry would probably want to know the government’s specific plans for the coming fiscal rather than its longer objectives. This year’s budget, placed on February 1, 2020, failed to measure the reasons for the country’s declining economic growth since 2017-18 and the possible impact of Covid-19 which was reported in China as early as in December 2019.

The budget for 2021-22 must focus on a specific road map to stabilise the economy, increase consumption, grow employment and compress government. 

The virus was first confirmed in India on January 30, 2020, after a Kerala student returned from China’s Wuhan University. More Indian students from the Chinese university returned home with the virus in the following weeks. Lok Sabha passed the budget appropriation bill in the middle of March 2020. The World Health Organisation (WHO) declared (March 11) the coronavirus outbreak as a global pandemic. However, the government did not reconstruct the budget for 2020-21, effective from April 1, based on the pandemic’s possible impact on the economy.


The country’s economic growth suffered its worst fall on record in the last April-June quarter. The gross domestic product (GDP) contracted 23.9 percent. The coronavirus-related lockdowns mainly weighed on the already-declining consumer demand and investment. The Indian economy has since been witnessing unprecedented challenges. The biggest challenge before the government is to design the 2021-22 budget to boost consumer spending.

Taxes need to be pruned across the table to make the country a low cost, high demand and high growth economy. Petroleum products need to be brought under the goods and services tax (GST) without further delay. This will have a highly positive impact on the prices of all products and services. It may also be time to shut down all unproductive, over-staffed government departments to have strict control over the non-plan expenditure. The size of the 2021-22 budget could be close to Rs. 37,00,000 crores. In the current state of economy, corporation tax, income tax, GST and customs levies put together may not cover even 50 percent of such an expenditure.

The coming budget can play a significant role in boosting consumption by vastly reducing the tax rates.

The country needs a fresh economic reform that will be clearly intended to expand consumption, domestic production, services and employment. Consumption is the key. Higher consumption or demand will take care of the rest.

The coming budget can play a significant role in boosting consumption by vastly reducing the tax rates. The government’s tax revenue collection may take a short-term hit. But it is bound to grow substantially with the growth of consumption and supply. The country’s present level of consumption is too low for the size of the population.

In the words of R C Bhargava, former bureaucrat-turned chairman of Maruti Suzuki, India’s biggest passenger car manufacturer-exporter, the only objective of government policies should be to increase the competitiveness of Indian industry so that it can make things at the lowest cost along with the best quality in the world. Bhargava said: “India has the capability to become a lower cost country than China if the industry and the government work together.”

Can the national budget for 2021-22 provide a strong signal of the government-industry working together to make the country a truly low cost, highly productive economy?

Can the next year’s budget make some radical changes in the tax structure to make it both consumer and manufacturer friendly?

The present tax structure goes against the government’s campaign for self-reliance or ‘Atmanirbhar Bharat.’ 

Take, for instance, the construction sector, a major source of employment. What message does the government want to provide by imposing 28 per cent ‘sin’ rate of taxes on construction materials such as cement, steel, paints and plywood? High taxes are choking economic expansion. To cover the government’s revenue shortfall, the tax base needs to be widened. Unfortunately, that is not happening. The present tax structure goes against the government’s campaign for self-reliance or ‘Atmanirbhar Bharat.’

Due to revenue shortfall, a stressed fiscal situation needs to be tackled by more judicious fiscal management than using high indirect tax rates that slow down demand or consumption and production.


Maybe, the government should seriously examine the pre-budget suggestions put forward by industry bodies such as CII, FICCI and ASSOCHAM and try to accommodate them if that helps industrial expansion and substantially improve consumption. For instance, CII has suggested the lowest or ‘nil’ slab for inputs or raw materials, a top slab of 5-7.5 percent for final products, and 2.5-5 percent for intermediate goods.

The industry body has argued that combining such a measure will help industry integrate itself with global value chains and turn its goods and services competitive in world markets. Exceptions could be considered for a few products presently in higher slabs, accompanied by policy actions to boost domestic manufacturing through phased manufacturing and production-linked incentive schemes.

Routinely, the Union Finance Minister had a series of pre-budget consultations with industry and business bodies and other stakeholders. Such consultations are seen more of a ritual than any substantive value influencing the policymakers’ thoughts.

With the massive economic down growth for 2020-21 staring at the government, the pressure of sudden high healthcare expenditure on account of vaccinating the nation to fight Covid-19 and the need for a sharp increase in the defence expenditure in the context of growing Chinese incursion threats are more likely to shape the government’s 2021-22 budget focus.

The bigger picture of the economy is to call for a rapid expansion of the consumer base, industrial production and large job creation. Making India a low-cost, globally competitive economy can no longer wait. (IPA Service)

(Nantoo Banerjee is the Executive Editor of India Press Agency. He is a well known columnist and author. The views expressed are personal.)