India Connected

A CLOSE SCRUTINY of the Budget reveals it to be a detailed and painstakingly considered document spelling out the Government’s vision in the immediate context as well as with an eye to the future. It is well planned and is forward-looking. It seeks to build on and further leverage a series of important reforms carried out in the last few years to do more at a faster pace and on a bigger scale. There is a particular focus on areas such as manufacturing, digital economy, startups, infrastructure, logistics, banking, and green energy.

The objective behind the initiatives in these areas is to build inter-sectoral linkages and move towards creating synergies while also reducing the hurdles and friction that lower the efficiency of the Indian economy. The idea is to make India more competitive. This is the thread that runs through the efforts in recent years to increase mobility and connectivity in all spheres, whether digital or physical infrastructure. Reforms that resulted in GST, e-way bills, and fast tags at toll plazas were aimed at removing hurdles in the economy, and the reforms proposed in the Budget need to be seen as part of the same chain of thought.

The finance minister has rightly avoided tinkering in the tax slabs and exemptions-free regime. Our corporate tax rate since 2019 is among the lowest in the world. From 2019, people earning personal income tax up to
₹ 5 lakh are not required to pay income tax. The message in the Budget is very clear—the Government is for a stable and predictable tax regime. You have to give the rates that have been set some time to deliver results. To make changes at a time when we are just about emerging from the effects of the latest Omicron wave would have been imprudent. Making provision for an updated return is a very good idea. It will reduce the compliance burden. The Budget has also continued the faceless assessment scheme, and this provides a great deal of transparency in the tax system and reduces unnecessary delays. It also does away with rings of middlemen who used to work to “ease” the tax filing process and pocket money in the process.

Providing a higher tax rate and TDS on crypto assets is a beginning and will help understand other issues governing the regulation of crypto assets that are currently in unknown territory. There is a need to correctly assess and regulate this new sector and ensure transparency and accountability. Options like banning or shutting it down may not be useful or achieve the desired ends.

The Budget also sends out a clear message on continuing past reforms and building further over the strengths that have been created and benefits that are now evident. The Government’s push for digital payments, digital currency, digital banking, OFC, 5G, solar, battery swap, infrastructure status to data centres will have a far-reaching impact. These initiatives are truly futuristic and map the emerging contours of the economy and also the rising aspirations for our young and talented entrepreneurial class. This is what will prepare the country and ensure India does not get blindsided by new developments in technology and finance. If we can take the lead instead of being followers, it will give India a better chance at being part of new regimes and having a role in framing the rules.

It is good to note that the Government did not fall into the trap of reducing fiscal deficits at the cost of capital and other essential expenditures. The need of the hour is to ensure growth, create opportunities, and support livelihoods by increasing the size of the economy and making it more productive. The capital push of ₹ 7.5 lakh crore will be a massive booster and will strongly support the virtuous cycle of generating employment, consumption, and growth.

The augmentation and extension of the emergency credit line guarantee scheme (ECLGS) to the hospitality sector will be very helpful to MSMEs in these difficult times. This sector remains the most vulnerable to the Covid-19 pandemic as any restrictions in movement immediately impact it. Help for this sector is welcome, and hopefully, 2022 will spell better news given the optimism generated by the fact that the Omicron wave has not been anywhere as devastating as Delta. India seems better prepared to fight the virus in the light of the experiences of the past two years.

The PM Gati Shakti plan connects and leverages the massive progress made in airports, ports, railways, telecom, digital arenas. It will eventually help bring the cost of logistics down from 14 per cent of GDP to closer to the 8-10 per cent mark, which will boost productivity and, thereby, the economy. These changes will have a wide impact that will yield results by way of increasing the productivity and profitability of Indian businesses. This is bound to generate employment and provide better returns to workers at all levels. Again, the changes should be seen alongside other reforms in labour laws and commercial litigation, and you will see the larger picture.

The imposition of excise duty on non-blended food will promote blending and use of green energy in India. It will also help reduce our dependence on imported crude, and also save us foreign exchange. The issue of green bonds is a major step as it will make available to the Government resources for promoting green energy in the country and develop infrastructure for use of renewable energy.

Renewable energy will get a good push in India. On one hand, the productivity-linked incentive (PLI) allocation for solar has been increased by about ₹ 18,000 crore, and on the other, customs duty has been imposed on the import of solar cells and modules. These two measures will incentivise the production of solar cells and modules within the country.

The Budget places a great emphasis on leveraging the existing digital infrastructure and platforms like Aadhaar and JAM (Jan Dhan-Aadhaar-Mobile) to carry out further reforms and create several more platforms like health digital mission, digital banking unit, digital currency. There is also a plan to promote digital learning at various levels and the creation of online resources and dissemination of learning through various channels. Knowing that not everyone in India has access to broadband, the launch of 200 TV channels can transform the education sector. It can completely change the way primary, secondary and higher education is currently handled. Also, initiatives like one nation, one registration, and digital land records are great transformative steps. These digital platforms will take India to the next level of the digital revolution, benefitting all sections.

Several reforms have been made in the customs duty structure. Many anti-dumping duties have been revoked to ensure the supply of cheaper raw materials. Graded customs duties are being imposed on capital goods and project imports so that India eventually becomes a manufacturing hub for capital goods. The changes reflect the careful and detailed approach to Budget-making. A great deal of thought has gone into the process to ensure that the right growth impulses are generated while adequate attention is paid to providing finance, including more innovative options. At the same time, the Government has not lost sight of its responsibilities in providing basic amenities like housing and tap water to those who need these most. These measures, along with the production-linked incentive (PLI) scheme, will go a long way towards making India a manufacturing powerhouse. The PLI scheme itself is expected to add around 2 per cent to GDP every year and has been showing promising results since its inception.

Overall, the Budget is extremely balanced and takes care of vulnerable sections and, at the same time, puts in place a concrete framework for the growth of the economy through a big push for quality spending led by the Government.

Digital Indiaeconomic reformsOne IndiaOpenomics 2022Union Budget 2022