Budget 2022: Fine Balance Between Electoral Populism and Fiscal Prudence. Sab Ka Saath Sab Ka Budget

Budget 2022: Fine Balance Between Electoral Populism and Fiscal Prudence. Sab Ka Saath Sab Ka Budget

 Budget 2022 Expectations: An Inclusive, Sustainable and Growth Oriented Budget for the masses.

 Budget 2022 is expected to be a budget for the masses with an aim of all round inclusive growth, job creation more savings for the common man with adequate push in overall infrastructure and incentive for private Capex with the underlying theme of Atmanirbhar Bharat.

 The Indian economy has passed through very turbulent times in the last 2 years and most businesses taking a big hit with the biggest hit to the SME companies that are the lifeline of the Indian economy. Due to the various fiscal and monetary policy supports provided by the Central Government and RBI respectively a V-shaped recovery has been witnessed in most sectors and large majority of the businesses have got back to normalcy. Budget 2022 is presented at a time when the country is passing through very challenging circumstances. With the third wave of COVID spreading across the country and fairly large number of cases reported, however with a lower rate of hospitalisation and deaths has resulted in no major lockdown in terms of the economy at an overall level however resulting in uncertainty remaining high, with balance sheets of Governments, businesses and households remaining stretched and most importantly a budget of electoral populism needs to be presented keeping in mind the 5 state elections in the first half of 2022 and a run-up to the General Elections 2024.

 The central theme of budget 2022 would be job creation, creating world class infrastructure, making India a super power in terms of a world financial destination, creating world class infrastructure and making India move towards a clean green society leading to overall prosperity and better quality of life to all citizens with adequate access to world class health infrastructure. The Government would give adequate incentives and push to companies in terms of fiscal and other related incentives to create world class manufacturing facilities like the PLI (Production Linked Incentive) scheme that the Government has floated across sectors to make India Atmanirbhar Bharat. The aim of the Government would be to increase the overall private Capex to GDP. At present the private Capex / GDP is at a mere 3%. At the peak of the last cycle Private Capex / GDP was at 18%. The Government would like to push this ratio to around 15% at the earliest. More the Capex in the country, more the job opportunities and greater would be the overall foreign investment into the country leading to overall inclusive growth.

 Some of the Key Expectations of Budget 2022-2023 are as follows:

 Ø More Income in the Hands of the Common Man

 ·      Rationalization in terms of Income Tax slabs by taking the present taxable slab to a higher slab from INR 2,50,000 to INR 3,50,000 as the minimum threshold and incentive to the middle class families with lower income tax to around 25% from present 30% for income till INR 10,00,000/-.

 ·      Increasing the limit of deduction available under section 80C to INR 250,000 from INR 150,000 at present resulting in more incentives to save.

 ·      Increase in interest paid on housing loan deduction limit from INR 200,000 to INR 250,000 on self-occupied properties and who own properties standard deduction of 30% be raised to 40%.

 ·      To encourage taking medical insurance in these uncertain times by increase in limit of Section 80D for self and family from INR 25,000 to INR 50,000 and from INR 50,000 to INR 85,000 for senior citizens.

 ·      Increase limit under section 80TTA of FD bank interest, post office schemes and other such schemes for general category from INR 10,000 to INR 50,000 to give a big boost to overall savings.

 Ø Further encouragement to Sovereign Gold Bonds (SGB), thereby encouraging the citizens at large to hold gold in the electronic form rather than physical gold. Reduction in lock-in for SGB from 5 years to 3 years and avail LTCG (Long Term Capital Gain) benefit upon exiting after 3 years.

 Ø Making India a world class Financial Hub.

 With an aim of including Indian bonds in the Global Bond indices leading to very large amounts of money invested by Foreign Investors in the Indian bond market, the Government would streamline its policies and taxation at a level playing field for such global investors. The biggest incentive would be given to the GIFT city making it an international hub of finance. In order to do so the following could be done.

•  Providing pass-through rights for India domiciled funds in The GIFT city. Investment with overseas jurisdictions to increase marketability and investment appeal of such funds to a global investor base.
• Increasing the duration of income-tax deduction benefit. Complete exemption from Minimum Alternate Tax (MAT) liability, removing the applicability of domestic transfer pricing requirements and applicability of GAAR to transactions within the GIFT City units.
• Exception from Withholding Tax of all units within the GIFT City.

 Ø Clean Green India.

 With an aim to comply with the Paris accord of climate change, the green revolution in terms of green energy has been picking steam in the country via Hydrogen, Solar, Electric and Gas.

 Some of the key points that the budget could address are:

 ·      Appropriate tax and fiscal incentives for Solar, Hydrogen and Gas plants linked to revenue and capital expenditure.

·      To accelerate and incentives for EV cars and bikes adoption. Providing incentive under Section 80. Granting an exemption of INR 2,00,000 towards interest on EV loans.

·      Reducing the GST rate on an EV charging infrastructure to 5%, from the current rate of 18%.

 Ø Making Real-estate Sector the Engine of growth and employment for India

 ·      Granting Infrastructure status to the RE sector, thereby making financing more accessible and creating liquidity for the developers.

·      Adding a tax advantage to an extent of INR 50,000 for all investments made in an REIT (Real Estate Investment Trust).

·      Reduction in GST rates for under construction property to 5% from present 12% and to 1% from present 8% for affordable housing.

 Along with these top expectations support for the Start-up companies would come in terms of greater access to capital via a nodal agency like SIDBI giving approvals to start-ups to list on overseas exchanges directly without a listing requirement on the Indian stock market and possibly an employment linked income tax structure to encourage start-ups in creating more employment. Also, allowing start-ups to carry forward losses, setting-off previous losses against income and unabsorbed depreciation under Section 72A of the Income Tax Act, in the past few years following a merger or acquisition. Also appropriate TDS and TCS provisions would be spelt out for investment in any form of Crypto Currencies.

 The budget would be a growth related and pro Rural and Agri budget with abundant incentives given for growth in Agri related sectors, with the underlying aim to double farm income which can happen by the Agro processing industry. Also the Government will increase spending on MGNREGA and PM-Kisan programs to support demand and job creation. Demand for work under the MGNREGA scheme remained elevated in the current fiscal amidst weak informal labour markets.

 Investors should look at the Budget 2022 on a wealth creation basis and invest in companies in Agri related, Capital goods, insurance and infrastructure sector. The investments should be in well managed companies that will participate in the Indian growth story. With appropriate fiscal support and schemes like PLI, India is well on its way to become the manufacturing hub of the world along with the Information Technology power house that India has which has resulted in export revenue in excess of USD 200 billion  a year for India. More wealth will be created in the next 10 years compared to the last 75 years and Budget 2022 is well the base upon which this exponential growth will be based.

 _Farzan Ghadially.