Union Budget should focus on fiscal prudence, tax restructuring, agriculture reforms: SBI Research

As the central government prepares for the upcoming budget on July 23rd, a research report by the State Bank of India (SBI) highlights crucial areas that need attention to drive sustainable economic growth and development in the country.

The report emphasizes on adherence to fiscal prudence while continuing on the path of fiscal consolidation, suggesting a fiscal deficit target of around 4.9 per cent.

"Government should focus on adherence to fiscal prudence and continue on the fiscal consolidation path, but at the same time refrain from obsessing too much over the fiscal stance," the SBI report stated.

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To provide relief in tax structures, the report advocates aligning personal income tax rates with corporate taxes and gradually transitioning all payers to the New Tax Regime. Additionally, it recommended considering tax parity for bank deposits to attract more savings and boost household financial savings.

For the agriculture sector, it highlighted the need to address issues like financing, livelihood support, and the Agri Credit Guarantee Trust Fund. Regarding the Minimum Support Price (MSP), the report noted the politicization of the issue and suggested exploring alternatives, as current MSP policies reduce trade and export competitiveness.

"The issues innate to MSP mechanism viz. needless politics, disincentivizing private investment, neglect of non-MSP crops, reduction in export competitiveness & burden of trade disputes alternative mechanism needs to be looked into vigorously, viz. obligation to private parties for buying crops at MSP," said the report.

The report also suggested developing a comprehensive mineral strategy, especially for critical minerals, to ensure mass employment and secure the supply chain from exploration to recycling.

The report highlighted that during the last 10 years' reforms have revamped the banking sector in India but it called for continues reforms in the banking sector, including the divestment of public sector banks (PSBs) and the stake sale in IDBI Bank.

"After a decade of transformative changes, the Indian banking system stands much healthier ready to scale up to meet emerging challenges as the country embarks on the Viksit Bharat sojourn" said the report.

Additionally, it recommended changes to the Insolvency and Bankruptcy Code and the promotion of Production Linked Incentive (PLI) schemes for MSMEs to reduce import dependency.

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The report also noted that by incorporating these suggestions into the upcoming budget, the government can lay a strong foundation for sustainable growth, promote financial inclusion, and drive economic resilience in the post-pandemic era.