Indian Finance Minister Nirmala Sitharaman has described the 2022-23 budget, which she unveiled in Parliament this week, as one that prioritises growth at the macro level while enabling welfare of the common man at the micro level. She has even characterised it as a blueprint for India’s "Amrit Kaal" – a term the government uses to refer to the 25-year period leading up to the country's 100th year of independence.
The budget is rather abstract, privileging a longer-term vision rather than a more pragmatic allocation of the money necessary to accelerate India's immediate post-pandemic revival. In fact, there is no change to any of the income tax bands. Investors, on the one hand, have hailed the budget for at least not raising taxes, to which the stock markets have unsurprisingly responded well.
On the other hand, income tax relief, which was hoped for by middle and low-income classes reeling from the impact of the pandemic, is conspicuous by its absence. This could be a setback to the majority of Indians, who are finding their feet after the disproportionate impact of a pandemic that saw only a minority prosper. Taxing the "income surge" segment would have also gone some way to alleviating this year’s increased fiscal deficit of $222 billion, which is $9bn higher than last year’s.
India's growth forecast for the coming year is pegged at 9.27 per cent, and Ms Sitharaman has propped her budget on four pillars of development that, in tenor, sound like progress – inclusive development, productivity enhancement, energy transition and climate action. However, for a country with the logistics and challenges of India, implementation is really where the test lies. For example, educating the majority of India’s population about the budget’s grand plans to digitise the national currency, and how they can partake in them, is vital. Failing this, the idea will remain a grand narrative and little else.
The travel and tourism industry, a huge source of foreign exchange for India, has been one of the worst-affected by the pandemic. Having barely recovered from previous waves, it currently faces another setback in the form of Omicron during what is supposed to be peak tourist season. Yet, the budget does not provide measures to support this sector. A popular call for e-visa fee waivers for foreign tourists, for example, has gone unheeded. While the budget does look at boosting the industry with liquidity by way of loans, which will offer some respite, more could be done to make India more travel-friendly for international tourists.
There is good news for those involved in domestic manufacturing, with the big headline being an allocation of 68 per cent of the defence capital spend towards local manufacturing. This is expected to make India a significant defence-manufacturing hub, just like similar moves in the past made the country a mobile phone-production hub. From being among the largest importers of mobile phones a few years ago – amounting to $8bn in 2014 – India is today a net exporter. More than 250 companies based in India manufacture mobile phones, with exports expected to scale to $5bn this year. The growth has been eight-fold and is an exemplar the government hopes to roll out to other areas of the manufacturing sector.
Surprisingly, virtual digital assets have made an entry into the budget with a 30 per cent tax on transferring them. This indicates an unequivocal approval for trading in cryptocurrency, although legislation on this continues to be awaited.
Interestingly, as mentioned briefly above, Ms Sitharaman has announced that India’s Central Bank will introduce a "digital rupee" this year, using blockchain technology, making India among the first major countries to do so. This has confounded many ordinary citizens, many of whom are unable to understand what this actually means. But it is in line with a government unafraid to stick its neck out to streamline the monetary and taxation sectors and minimise corruption. One need only recall its demonetisation drive, the implementation of a one-nation goods and services tax and multiple initiatives aimed at cutting of red tape. The digital rupee is Central Bank digital currency that, according to Ms Sitharaman, "will also lead to a more efficient and cheaper currency management system”.
On the education front, the Finance Minister has rolled out the red carpet for foreign universities to set up campuses in India through an international financial services centre in Gujarat, where they will not be encumbered by domestic regulations. “World-class foreign universities and institutions will be ... permitted to offer courses in financial management, fintech, science, technology, engineering and mathematics,” Ms Sitharaman said.
Gujarat, where Prime Minister Narendra Modi is from, has historically been one of India’s most progressive states. During Mr Modi's time at the helm, Gujarat has seen a further boom in infrastructure development. The creation of an education hub there will only increase investor confidence.
Other budget headlines include an increase in investments by 35 per cent, from agriculture to fintech. Furthermore, infrastructure plans are ambitious and include a plan for 25,000 kilometres worth of new highways and 100 new cargo terminals.
Overall, despite a steep rise in total capital expenditure, the budget will be a challenge for many Indians to appreciate. It is a document with far horizons in a country where immediate concerns are on everyone’s mind. While it lacks in concrete and prompt measures to reverse job losses and inflation, and to encourage demand in faltering domestic consumption, it introduces bigger ideas to lay a more competitive groundwork for India’s digital future. The question is whether, after a particularly trying two years, the country is ready to think about the next 25.