Budget gives big boost to government spending
The central government continued to stress on growth over fiscal consolidation for the second consecutive year. Finance Minister Nirmala Sitharaman proposed significantly boosting capital and infrastructure expenditure in 2022-23 in the national budget presented in Parliament. Capex allocation rose to the highest in 18 years as a percentage of the total expenditure at 19 percent from 16 percent in 2021-22.
Why it’s important: India has started staging a recovery after the shock imparted by the coronavirus pandemic. The government has decided to support the economic momentum by spending heavily on infrastructure despite a higher fiscal deficit.
Corporate India hails focus on capex, growth and sustainability
Captains of Indian industry and business welcomed the federal budget for its strong stress on economic growth by significantly raising government spending. India Inc also welcomed the government’s focus on sustainable development that has been coupled with efforts on ease of doing business.
Why it’s important: The massive allocation on capital expenditure by the government will raise business sentiment, besides benefiting companies across sectors such as infrastructure, construction, transport, power, cement, telecom, defense, and information technology, among others.
India to tax crypto gains, introduce digital rupee
The government has decided to introduce a flat 30 percent tax on gains from trading in cryptocurrencies. It also announced that the Reserve Bank of India will introduce a digital currency this year, which will coexist with the likes of Bitcoin and Ethereum.
Why it’s important: The development indicates a tentative acceptance of cryptocurrencies in the country, transactions in which will be taxed but they will not be banned immediately. Although investors will now have to pay taxes on crypto gains, there will a sign of relief for retail investors who have been trading heavily in cryptocurrencies in India. But many will likely sell digital assets before the end of March.
Budget unlikely to trigger consumption demand
Consumer goods companies said that the budget proposals, which focuses on long-term growth by raising government capex, will not have an immediate effect in boosting consumption demand. Business will only improve if commodity prices and inputs costs ease.
Why it’s important: The fast-moving consumer goods sector in India had contracted 1. 8 percent by volume in the December quarter compared with a year ago because rural demand has fallen. Indian households have slashed expenditure as the pandemic has squeezed incomes.
No new tax breaks but returns can be updated
Although the budget disappointed taxpayers who were expecting some relief or hike in deductions amid an income squeeze due to the Covid-19 pandemic, it offered some benefits such as an opportunity to file updated tax returns.
Why it’s important: The government has stayed the course on its direct tax reforms but not announcing any further deductions on income tax. Its tweak to provide a two-year window to update tax returns will be a relief to taxpayers who have made mistakes but were unable to correct them.
Green energy measures will likely boost climate action
The budget announced a slew of measures to reduce carbon emissions and intensity, including a policy on battery-swapping to promote electric mobility, issuing sovereign green bonds and another policy that makes it essential for coal-fired power plants to use biomass pellets as 5 percent of their fuel mix.
Why it’s important: India has been proactive on climate action and energy transition. The budget has announced measures that will further the government’s intentions to reduce emissions of greenhouse gases in the country.
Government to auction 5G spectrum, BSNL gets shot in arm
The telecommunications sector will get a 5G push under the budget as the central government has focused on spectrum auctions and starting 5G mobile services in the next financial year, besides a performance-linked incentive scheme for 5G design-led programs. It will also infuse Rs 447.41 billion loss-making Bharat Sanchar Nigam Ltd as capital for 4G spectrum, technology upgradation and restructuring in addition to a Rs 35.5 billion grant to pay goods and services tax on 4G spectrum allocation.
Why it’s important: Telecom and 5G is likely to boost growth and offer more job opportunities. The focus on 5G auctions and rollouts will help India catch up with nations that have already launched 5G services.
Budget frontloads digital roadmap, technology implementation
The national budget was heavily skewed in favor technology implementation and innovation, ranging from digital assets and payments, blockchain and artificial intelligence, to drones for farmers and agricultural services, to digitization of health care and education delivery, among others.
Why it’s important: India has always betted heavily on computerization and digitization. The accent on technological solutions for a host of sectors in the economy will continue to provide a further boost to cutting edge technologies.
Divestment and government borrowing targets realistic: finance minister
The disinvestment target of Rs 650 crore for 2022-23 was realistic and achievable, finance minister Nirmala Sitharaman said in a post-budget interaction with the media. She said the government is serious about disinvestment, and it won’t push out private sector from the money market with higher borrowings.
Why it’s important: The government has already divested its stakes in Air India and Neelachal Ispat. The highly anticipated initial public offering of the Life Insurance Corporation of India, the biggest of its kind, will take place this year.
India’s bond yields surge on higher borrowing plans
The country’s sovereign benchmark yield rose up to 24 basis points, its highest in more than two years, as investors were worried about additional borrowings by the central government that coincides with tighter liquidity worldwide as central banks dial back loose monetary policies. One basis point is one-hundredth of a percentage point.
Why it’s important: The government’s expected gross borrowings for 2022-23 could be as high as Rs 14.95 trillion, which is much higher than the market consensus estimates of Rs 12-12.5 trillion. Traders also said not taking steps to be included in the global bond index was a missed opportunity.
