‘A growth, development oriented budget’

India’s GDP is expected to increase to Rs 232 lakh cr from Rs 197 lakh cr last year, an absolute increase of Rs. 35 lakh cr. The economy is expected to grow in real terms at 9.2% and in nominal terms at around 17.5%. This is indeed commendable, coming off a Covid-hit bad year of 2020-21. For the next year, the growth target is 8 – 8.5% and in nominal terms, around 12%, with the GDP growing up to 260 lakh cr or 350B dollars.

A redeeming factor of this budget has been an increase in tax collection, from Rs. 22.17 lakh cr as per the Budget Estimate to Rs. 25.16 lakh cr as per the Revised Estimate, an increase of Rs. 3 lakh cr. However, if one looks at the recently released government’s tax collection till Dec 2021, the gross tax collection is Rs. 19.28 lakh cr. Considering a minimum tax collection of Rs. 6.85 lakh cr, which was collected in Jan – Mar 2021, current year’s tax gross tax collection would be about Rs. 26.13 lakh crs. It is very evident that the Revised Estimate of tax collection for the current year has been underestimated by Rs. 1 to 1.5 lakh cr. The government could have taken a more realistic estimate of tax collection this year based on the tax collected till Dec 2021 and possibly allocated that money to fund the states or to ensure that some relief is given to the taxpayers.

The disinvestment target for FY 2021-22 of Rs. 1.75 lakh cr has been cut significantly to Rs. 78,000 cr, as per the Revised Estimates. It appears that the govt’s target of LIC’s disinvestment is reduced to Rs. 50,000 cr from Rs. 1 lakhs cr. The divestment target for FY 2022-23 is Rs. 65,000 cr, which is a gross underestimate of what the govt could naturally get.

The expenditure is going up to Rs. 34.4 lakh cr, as per Revised Estimates from the budgeted Rs. 32.46 lakh cr, a marginal increase. This shows that despite the supplementary demands of Rs. 3.23 lakh cr, there have been savings of about 1 lakh cr in the overall budget. If one looks at the market borrowings this year, it was budgeted at Rs. 12.05 lakh cr. In the Revised Estimates for FY 2020-21, it has been brought down to 10.46 lakh cr, which goes up to Rs. 14.95 lakh cr in the next year.

Tax collections are budgeted at Rs. 27.57 lakh cr which is a small increase of less than 10%. The tax collection could possibly be higher by Rs. 1/1.5 lakh cr based on growth in direct taxes. The disinvestment proceeds and dividends receipts too can be much higher.

The expenditure is expected to go up to Rs. 35.08 lakh cr which is again a marginal increase, with focus on infrastructure, social sector, housing, water, health, etc.

Overall, the financial statements of the govt shows that the economy is in a healthy state, with a positive bias towards increased tax revenue. If one looks at the details of spending, the big factor has been a massive increase of 35.4% in capital expenditure from Rs. 5.54 lakh cr to 7.50 lakh cr. The focus on capex is very high. For the states too, the incentive for capex has gone up from Rs. 15,000 cr to Rs. 1 lakh cr, which is very significant. The focus on increased spend on infrastructure will make India more productive and stronger much later. As far as the startups sector is concerned, there has been some disappointment. While surcharge for all capital gains has been reduced from 37% to 15%, long term capital gains tax on unlisted stock remains at 20%. This discriminates against the India investor who has to pay 20% as against a foreign investor who pays 10%.

The government has extended the tax deduction scheme for start-ups by one more year. But, like some of the government schemes, the conditions are so onerous that only about 600 startups can make use of it out of over 12,000 funded start-ups.

Announcement of a digital rupee to be issued by the Reserve Bank of India is very good. And the 30% tax on sale of digital assets is also very good. It obviously means that sale/ transfer of crypto assets held by any Indian tax resident will be taxed at 30%. And the government’s statement that there will be trust-based governance and the fous on e-passports is extremely important.

The target of reducing voluntary winding up to 6 months removes a big barrier to growth. The increase in defence purchases domestically from 58% to 68% indicates that the government means business in this particular area.

Fiscal deficit this year is expected to be 6.9%. Though one can believe that with tax collections going up because of underestimation, the fiscal deficit could come down.

The budget needs to be commended for continuing the good work on infrastructure and growth. The one big negative is that the long-suffering middle class has not been given any tax relief and not left with more cash in hand for spending in this difficult period. 

T.V. Mohandas Pai (Chairman, Aaryn Capital Partners)