How Budget 2022 shows India 'agile' in its reform approach

With inflation at a decade plus high globally (7% US; 14% WPI & over 5% CPI in India), and the rising oil prices ($90 going to $100) threatening to push it further, the government had to make choices to keep its commitment of bringing down India’s fiscal deficit from 6.9% in FY22 to 4.5% by FY26.

Here, the most important choice for the government to achieve this commitment has been – how do they shape the budget's purpose going forward. Is the Budget meant to present the proposed expenditure of the government towards their policy priorities and how to fund the same, or is the Budget meant to be an opportune time to announce new schemes and priorities? The question I ask here is – if the Government waited for Budget 2022 to announce important policy shifts since the last budget?

The withdrawal on Retrospective tax or the game changing new Public Procurement Policy are just two of many important policy shifts that happened without waiting for the Budget day. Therefore, the message is clear – India has grown up, will be ‘agile’ in its reform approach (borrowing the nomenclature from the Economic Survey) and reforms in India don’t have to all have their birthday on 1 Feb. All 365 days can be auspicious if we must prioritise development.

Like 2021, the key question in front of the FM must have been – Shall I focus on cutting my revenue (taxes) or increase my spend (investment) as my focus to prime growth? The FM continued to prefer the latter, growing at the same c. 35% clip like Budget21, pushing for investment led growth versus consumption fuelled. The inflation concern would have pointed towards this choice. The desire for predictability and consistency confirmed it (no significant changes in key personal rates and exemptions in years).

At the same time, the few tweaks in tax rates that were made seem to be also targeted on value creation and investment. The 15% capping of surcharge on long term capital gains is one such change, which will further fuel entrepreneurs, ESOP holders and investors to fuel value creation through investment. Extending the tax exemptions for new manufacturing units and for start-ups by a year each are also suggestive of this investment focus.

Remain silent on digital assets until the Crypto Bill or tax them now but risk giving the impression of legitimising the same? As we know the FM chose the latter from 1 April 2022. What is concerning is news reports subsequently that the government retains the right to look back for the period before 1 April 2022. Such matters lead to litigation and breakdown of trust, something we have done well to re-build. Irrespective of clarifications that taxing virtual digital assets does not legitimise them, data has shown the rapid ramp up in interest from retail investors in this asset class post this announcement.

Do I spend on an urban employment guarantee scheme, or a minimum income social security net or do we focus on government capex that will create jobs through private sector participation in execution? Again the answer seems to be to prefer investment over giving income whilst being unproductive in the hands of anyone.

This budget gets 10/10 on simplicity, consistency and alignment. And we can therefore pretty much predict the way FY23’s budget (and FY 24 vote on account) will go, which is a great thing for investors, for business and ultimately for shaping that more Vibrant Bharat as we like to call it.

This article was originally published on The Times of India.