Budget focuses on digital and capital investment to make a better India

02 Feb , 2022 By : monika singh

Second year in a row, the market has given a thumbs up to the Union Budget. After the Budget, both Nifty and Sensex were up 1.5% from the previous close on Tuesday. Of course, the market was volatile during the day. It might have been based on a fear that the government’s focus was more on growth and not enough on inflation. The initial reaction of the bond market has been muted with the 10-year G-Sec bond yield increasing from the previous close of 6.68% to 6.85%.
There are multiple reasons for this positivity. One common thread is a consultative, digital-focused, forward looking and growth-oriented approach of the finance minister. Apart from this being evident in the various policy announcements by her during the year, the Budget too stood tall on all these counts. Several announcements in the Budget have undergone deliberations over a period and so would enable easy implementation. A digitally advanced India continued to dominate the Budget. A heavy boost to capital investments is envisaged to create a new India. Further, facilitating growth of most sectors, including startups, is a focus area.
Digitisation – a big theme
If I were to put one big theme for the Budget that cuts across most of the initiatives, I would say it is digitisation. There are multiple bold steps on this front, including proposals on Central Bank Digital Currency (CBDC), Digital Banking Units (DBU), digital health records, digital land records and an agri-tech fund. It gave indirect recognition to cryptos. The Budget also was focussed on startups, gave a big boost to drone technology, shed some details on launch of 5G technology, and touched upon digital education and R&D.

The proposed introduction of the CBDC is a major step towards the creation of a complete digital financial infrastructure. The Digital Rupee will be issued by the Reserve Bank of India starting 2022-23 using blockchain and other technologies. As the concept evolves, some of its obvious benefits would include financial digitisation and inclusion; reduced cash in circulation and its related issuance costs; tracking of currency movement and control on shadow banking; a completely contactless economy; and a more efficient and resilient payments system. It would also help to realise a closer integration of monetary and fiscal policies, to achieve a more efficient macro-policy regulatory system and in the long term, may enrich and improve monetary policy.

Setting up 75 DBUs in 75 districts — as proposed in the Budget — would serve as a blueprint for setting up digital banks. The indirect recognition of cryptocurrency by taxing any transfer/sale of virtual digital assets could be one step closer to regulating and recognising the crypto world.
Boost to Infrastructure and Investments
The government acknowledged that capital investment holds the key to economic revival and at the current stage, private investment needs support in the form of public investment. Considering this, the outlay for capital expenditure has been stepped up by 35.4% (from Rs 5.5 lakh crore in FY22 to Rs 7.5 lakh crore in FY23). I believe the increased capital spending by the government will boost private investments and consumption by creating employment and by supporting both large industries and MSMEs.

To boost investments by private equity and venture funds, it was proposed to set up an expert committee to look at the regulatory and other issues related to PEs and VFs more holistically. This is in line with the discussions at an earlier meeting of the Prime Minister with representatives of various PEs and VFs.
IFSC – Gift City
The setting up of an international arbitration centre at the Gift City will help in dispute resolution. Also, a long pending ask to exempt income of a non-resident from offshore derivative instruments or OTC derivatives issued by an offshore banking unit, etc. has been accepted. These measures are aimed at promoting the IFSC as an offshore investment destination.
Taxation – shortest para in the recent history of Budgets
In my opinion, Part B of the Budget, which covers taxation, would be the shortest possible paragraph in recent Budgets. But then, only few changes were expected, and these were in line with the various representations made to the government.

Fiscal Deficit – on path to reach the target for 2025-26
The previous Budget had pegged the fiscal deficit for 2021-22 at 6.8% of GDP, which has now been revised to 6.9%. The current Budget estimates fiscal deficit at 6.4% of GDP for 2022-23 which is slightly above the market expectation of 6.0%-6.3%. However, this fiscal deficit of 6.4% is consistent with the broad path of fiscal consolidation announced last year to reach a fiscal deficit level of <4>
Other matters
The Budget has allowed issuance of surety bonds by insurance companies. Globally, such surety bonds are commonly used as a guarantee.

I would have liked to see a somewhat higher allocation for healthcare to create better facilities in the country. The pandemic has indeed exposed the shortage of quality medical infrastructure in a country of our size and population.

Overall, I would endorse the Budget and its direction. The proposed changes would surely serve as a booster dose for a better, safer, progressive, forward-looking and modern India.