However, such measures can not be seen as long term solutions. At best, they could be introduced to fill in the revenue gap. Due to covid, the revenue is estimated to drop by 25-30% in FY21. Rather than increasing domestic taxes, the extensive focus is likely to be on increasing income by increasing custom duties, import duties, and anti-dumping duties on finished/semi-finished products to protect the domestic manufacturers. This will also be more aligned with the government’s Aatmanirbhar vision.
Borrowing plans: Bond market needs to step up
If pre-budget talks are of any indicators, the government is going to put fiscal consolidation on the back burner for now. For that, the government
will need to raise additional funding. For that, it would be looking to increase FPI’s participation in India’s bond market. For that, the budget will need to provide a credible roadmap and regulatory relaxations. We expect the government to reduce entry barriers for FPIs in its bonds across the 5-year, 10-year and 30-year tenors.