Scope for tax concession limited in Budget, higher capex may be focus: EY

The scope for tax concessions in the upcoming Budget next week is very limited, and the finance minister may prefer to inject stimulus into the economy through increased expenditure, mainly in infrastructure, EY India Economist D K Srivastava said on Wednesday.

In the pre-budget session on 2021-22 Budget, EY India Chief Policy Advisor Srivastava said the fiscal space available to the finance minister is extremely limited and therefore if she has to choose the most optimal route to support growth and any possible concessions on the tax side, that would be quite limited.

"...if that (tax concession) happens possibly some of the sectors can be related to, could be the real estate sector and construction sector broadly where some of the incentive measures could yield positive benefits. But I feel the scope is very limited. On the other hand, the preferred stimulus injection may be through the expenditure route," he said.

Srivastava said the fiscal deficit in the current fiscal is likely to be between 6.5-7 per cent.

He said in crisis years the Government could relax the fiscal deficit target, but keep a close eye on the projection of debt-GDP ratio.

The government has to raise spending, especially capital expenditure, to an "unprecedented" level, he noted.

"Therefore, in our projection, we have said that capital expenditure must grow at rates not below 20 per cent for current and next year in order to come back to the plan of National Infrastructure Pipeline.

"Unless we really expand our infrastructure, the growth story would not be sustained. Therefore, the appropriate use of scarce fiscal resources should be to get maximum multipliers. Any stimulus on the taxation side should be very limited," he added.

The government's fiscal deficit soared to Rs 10.75 lakh crore, or 135.1 per cent of the 2020-21 Budget Estimates (BE), at the end of November 2020, mainly on account of low revenue mop up.

The 2020-21 Budget had pegged the fiscal deficit for the current financial year at Rs 7.96 lakh crore or 3.5 per cent of the GDP. These figures, however, may have to be revised significantly in view of the economic disruptions created by the coronavirus pandemic.

Fiscal deficit had soared to a seven-year high of 4.6 per cent of the GDP in 2019-20.