Budget 2021: Do You Know From Where Govt Collects Funds & Sources Revenue? Check Details Here

Finance Minister Nirmala Sitharaman is all set to table Union Budget 2021 on February 1 and situation this time around is not the same owing to the Coronavirus catastrophe which brought economy to a standstill.

(File Photo/ Getty)

New Delhi: Many of us wonder where the government procures lakhs of crores of funds to allocate it to various industries, segments, and welfare of people of the nation while presenting Union Budget every year. Many of us might know direct and indirect taxes are always the best go-to option for a government to refill its repository as it is the easiest way to increase revenue without much brainstorming. 

However, if we straightforwardly analyse the revenue collection mechanism, we would know that it is much complicated than it appears to be. Finance Minister Nirmala Sitharaman is all set to table Union Budget 2021 on February 1, and the situation this time around is not the same owing to the Coronavirus catastrophe, which brought the economy to a standstill.

Not just reviving several industries such as agriculture, real estate, automobile, and others, government equally needs to put money in the people's hands. With such a situation, the increasing tax burden on the common man will not be viable. Then how will the Modi government pull it off?

We at ABP LIVE spoke to an expert to make you understand how can government table a Budget, which can be a win-win deal for not just the common man but also for ailing industries, striking the right balance with the economic crisis.

Here are the excerpt of a conversation with Sambit Chakraborty, a Management Consultant & Tax Specialist:

ABP LIVE: Is there a possibility of Covid Cess being introduced and a comeback of wealth tax? If yes, to what extent?

Sambit: India is already one of the highest taxed regimes while the tax base and tax compliance remains low.  Cess has a way of entering but not exiting historically. Effect, accountability and utilization of the money collected vide cess is questionable.  With all the talk of V shaped recovery, consumer spending and free covid vaccines, it is unlikely a covid cess will or should happen.

ABP LIVE: If not income tax, will the government increase custom and/or import tax?

Sambit: Quite possible and likely given all the talk of atmanirbhar bharat - this can be given a nationalistic coat of paint and could help the government exchequer as well in the demand inelastic non price sensitive import items.

ABP LIVE: Will there be an increase in FPIs participation, reduce entry barriers in the bond market

Sambit: The government is cash strapped.  They are likely to loosen various entry, regulatory, and, legislative frameworks to increase (non Chinese) investment and participation by foreign investors and institutions.  FPI s are highly liquid and the stock market has run significantly ahead of earnings recently anyway due to FII activity. This is an area, overall, where easing of norms is likely to happen. Conversely, a negative rendition of the same will lead to a crash in the stock market.  However, that is unlikely given Sitaraman's personal history of having to roll back several suggested rules quickly and embarrassingly in her first budget.

ABP LIVE: Will govt go aggressive on disinvestment of big giants like BPCL and LIC?

Sambit: The Government will, without any doubt go very big on disinvestment LIC and AI being the 2 biggies and with the Government being heavily cash strapped, we will see mega IPOs and stake dilution happening next year.  Disinvestment will be one of the 3 things along with highly taxed petrol and diesel and Interest payout by RBI to the government.

ABP LIVE: How will government tackle fiscal deficit?

Sambit: The so called V shaped recovery which is being touted in quite unlikely to happen if the Government tries to balance the books. Infact worldwide, major governments have through fiscal prudence to the wind (eg USA, Germany, UK) to go on a "spend, invest, and, earn" path.  India is likely to do the same.

Verdict and ratings of Fitch and Moody's et al is manageable and can be handled within the ambit of once in a century occurrence.  This is unlikely to influence government budgetary actions too much.

ABP LIVE: How will FM Nirmala Siraraman generate revenue?

Sambit: 1. Mega Disinvestments
             2. Ease of FDI, FII, PPP
             3.  Mega and multiple infrastructure bonds
             4. Ultra high tax on price sin goods
             5. Higher taxes on incomes of 5 cr and above
             6. Widen tax base and implementation - include other categories except farmers (given current political scenario)