The year 2020 (and the financial year 2021) drove the world, and its economy into shock mode. Even as the drastic events of that year, marked by strict lockdowns, complete travel bans and the horror of an unknown virus and painful lonely deaths already seem a distant past, we are in the throes of a numerically massive third wave. The second wave battered an already tottering world further into chaos, and this wave – whilst relatively benign at first glance – continues to hurt people and economies relentlessly. And while we all hope for a milder impact this time round, the ultimate outcomes and effect on the economy is still to be seen.
Even as all states remain impacted by the pandemic, there are five states – including the humongous and politically relevant Uttar Pradesh – that are going to the hustings in a month. The Budget 2022 assumes significance just the way a few have in the past. Sure, there have been blockbuster budgets in the past, and the Budget 2021 carried on it great expectations of a revival booster for the economy. However, this budget, while even more so burdened by the same great expectations, also needs to be the one that sets India on a path forward and take it ahead. We have, in a way, an unprecedented opportunity to unleash true big bang reforms that we have hoped and waited for now for almost a decade. The opportunity is ripe to pace ahead of China and other competitors and set a path beyond projections. Whether that happens or not is quite a matter of speculation, but what is true is that the pandemic and the upcoming Assembly elections will certainly reflect prominently in Budget 2022.
*Agriculture and Rural India
In my mind, going by this government’s past track record, the Budget will continue to focus on agriculture and the rural sector. In continuation of the Atmanirbhar policy focus, great accent will be laid on the core agriculture sector and agricultural logistics. I also expect more relief for the MSME sector. These entrepreneurs remain the backbone of the economy and also have been the most impacted by the pandemic. In continuation of the relief packages announced last year, the MSME sector is likely to see additional sops coming its way. The sector remains fragile on account of lack of capital, and it is my hope and expectation that the Finance Minister shall address this robustly. In the same vein, I do also believe that rationalisation of GST may be on the cards to provide relief to small producers, especially in the food and pharma sectors, which can trickle downstream to benefit the end consumer.
Sops for Exporters
Sops are also likely for exporters through incentives in the textiles and handicraft segments as well as other items that enable import substitution. The aim will be to make the textile industry more competitive and acceptable globally. A few other industries that will be in focus
Include semiconductors, lithium batteries, infrastructure for renewable energy and the electric vehicles industry. Given the prevailing short-supply of semiconductors, on which a spectrum of industries – ranging from information technology to traditional automotive and electric vehicles – is heavily dependent, the government is likely to take initiatives that will help step up production and reduce import dependence. These are all key sectors driving the Indian economy and there will be a focus on ensuring that all is done to keep them firing from all cylinders.
Also likely to be in focus are renewable and green energy and we should expect major measures in these domains. Environment, Social and Governance (ESG) and sustainability are key themes globally for the future and in order for India to play, as expected, a significant role, it is important to go beyond direction, to direct action. Another area where India can play a key global role is as an Arbitration hub, much in line with Singapore and the United Kingdom. My hope is that this Budget will bolster the steps already taken to bring suitable amendments to the Arbitration & Conciliation Act, 1996. Commercial disputes in India have been subjects of long drawn legal battles leading to loss of short and long-term value due to the pause they bring to operation and innovation. Providing a robust globally-benchmarked mediation and dispute resolution process would not only resolve the issues faced by businesses operating in India, but also drive global businesses to see India as a hub for early and robust resolution.
Crypto currency is another hot topic on which the government has already stated its position. However in order to ensure that that there is no misuse of cryptocurrency, along with a substantive leverage of an emerging market, there is need to bring in a comprehensive, fair and globally competitive set of laws governing this domain. The tourism and hospitality sector is another sector that needs to be supported, given the impact the pandemic has had on it. The sector has been one of the largest employers in the country, and incentives and tax breaks could be given so as to help it sustain through the pandemic and recover post-pandemic in order to keep driving economic growth. The government may also look at creating special tourism zones with specific incentives to both support the sector as well as add more steam to the economic engine. Apart from this infrastructurally the budget may provide further incentives to the creation and scaling up of MROs as the aviation industry continues to grow, but also look at ways to rationalise costs as it recovers from the pandemic.
On the financial sector, there would continue to be considered moves for improved structuring. The government is unlikely to tinker much with the markets but may take measures to create more exchanges to mitigate risks. Retail investors may also be given tax breaks to address concentration risks. While the formation of development financial institutions (DFIs) and national asset reconstruction companies (ARCs) were steps to reform the banking sector as a whole, continued capitalisation of PSU banks along with mergers and disinvestment is likely to be in focus to further reform. And also beyond the financial sector, PSU mergers, rationalisation and disinvestment is likely to happen in a big way in line with the announced policy of the government exiting business, except limited PSUs in a handful of critical core sectors.
Another area where the government is likely to focus on better governance is strengthening of protocols and processes around the PMJAY scheme which has seen certain concerns during the pandemic. The government is also likely to continue on its path of reforming the regulatory environment for companies, especially through further decriminalisation of various clauses of the Companies Act. Finally, on taxes, while I do foresee further rationalisation in corporate tax structures to attract more capital, I do not expect much change in personal tax.
In sum and substance I believe that Budget 2022 will follow the line from last year and drive more reform. One can try and predict the scale and direction of these, but for what it will actually be, we wait with bated breath for 1 February.