India Inc should match the pace and intent of the central government in terms of visualising for the next 50 years, that has frontloaded building robust infrastructure across physical-technical-social space, ensuring traction among various income groups, an SBI report has suggested ahead of the Union Budget 2025-26.
Good profitability post pandemic, and viable financing options through a mix of sources (a resilient, deep and vibrant capital markets in harmony with a strong banking system that has got its mojo back) augurs well for the investments that harness India's strategic pitching for becoming the manufacturer of the new world order, said SBI Research in its note.
Advocating for a new progressive tax regime, the report assumes that government can better ensure more tax compliance and enhance consumption with better disposable income "by moving all and one under the New Tax regime, at a nominal loss(es) by foregoing certain amount of tax collection".
The new tax regime in combination with taxation reforms have ensured that mop up of taxes has grown pretty handsomely over time.
This fiscal prudence is important for the government while it continues the fiscal consolidation path.
The report is of view that the fiscal deficit as percentage of GDP may come at 4.5 per cent in FY26 (Rs 15.9 lakh crore) that looks like the new normal in a world of uncertainties, offering flexibility in tinkering the glide path a little to romp up inclusive growth.
With smart usage of switch and buyback gross market borrowing (Rs 14.4 lakh crore) can be expected in FY26 due to an increase in redemptions, when part of the COVID-19 pandemic borrowings are due for repayment, resulting in a net borrowing of Rs 11.2 lakh crore (Rs 4.05 lakh crore redemption in FY26 and expected switch of Rs 75000 to 100,000 crore)," the report mentioned.
Direct taxes contribution to total tax revenue rose to 58 per cent in 2023-24, the highest in 14 years. Personal income tax (PIT) collections (7 per cent) are surging higher than corporate tax collections (4 per cent) in 5 years since FY21
"Of late, there is a tsunami of women centric schemes unleashed by multiple states offering direct benefit transfers (some badly guised as pure electoral realpolitik, we believe) that can bleed select states' finances going forward as the wedge between revenue receipts and such expenditures may vault to 3-11 percent of the states revenue receipts," the report argued.
With income transfer to women likely to be promised competitively by states in future, even the Union may be tempted to follow suit. It would be worth taking course to adopt a universal income transfer scheme (matching grant from centre to states) towards substantially reducing several market disturbing subsidies," it added.
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