Budget 2022 is an investor-friendly one

Sanjeev Krishan

Budget 2022, presented when the third wave of COVID-19 and its impact have started to wane, focuses on near-term recovery, while also laying the foundation for the growth of the economy for the next 25 years. The government has committed to the development of infrastructure (including data centres and energy storage systems) by increasing the capital outlay, identifying sunrise opportunities, and promoting GIFT City. Its focus is on promoting public-private partnerships in newer areas to build the confidence of the private sector. The aim is to increase investment levels, and put India on a higher growth trajectory.

Promoting Private Sector Participation

The liberalisation of the defence sector with a special focus on design and development of military platforms, and equipment through the special purpose vehicle (SPV) mode is seen as one of the proposals which should give impetus to private players to partner with the government, thereby strengthening the defence sector. Further, the introduction of the production-linked incentive (PLI) scheme for newer areas such as design-led manufacturing for 5G, and for manufacturing of solar modules is likely to see new players venturing into these industries, and the creation of a strong ecosystem. While the government has introduced a bouquet of PLI schemes in the last few years, the actual benefit that can be availed from these schemes would be key to sustaining investor interest.

Budget 2022 has kept in mind sunrise opportunities such as artificial intelligence, geospatial systems, drones, semiconductors, and the associated ecosystem, space economy, and the pharmaceuticals industry. The government intends to promote these areas by setting up privately-managed thematic funds, and also contributing up to 20 percent of the corpus to finance these areas. The promotion of these avenues is expected to assist in developing skills, generating employment, promoting entrepreneurship, modernising India, and achieving sustainable development.

Expanding The Ambit Of GIFT City

Foreign universities shall now be allowed to set up a unit in the GIFT City and offer courses ranging from financial management to science and technology, without needing to comply with domestic regulations. Another initiative linked to GIFT City is the proposal to set up an International Arbitration Centre (IAC). This is expected to result in timely settlement of disputes, and improve the business environment. GIFT City has also been made more attractive for foreign players by extending the benefit of tax exemptions to inter-alia royalty or capital gains in connection with lease of ships or income arising on transfer of offshore/over-the-counter derivatives.

Good For Businesses

The government is also keen to further improve the business environment by promoting ease of doing business. Some initiatives to this end are upgrading IT systems to expedite the process of a company’s incorporation and liquidation, and setting up of an expert committee to examine issues faced by venture capital and private equity investors. The decision to keep income tax rates unchanged for companies, firms, LLPs, and individuals is yet another measure that is likely to build faith in the stability of the tax environment. Further, to bring parity between listed securities and other capital assets, the reduced rate of surcharge, viz. 15 percent, on transfer of capital assets has been extended to all classes of long-term capital assets.

This Budget saw the withdrawal and phase-out of specific customs exemptions. The tariff structure is being simplified through rationalisation of exemptions in the notification vis-à-vis the customs tariff rates and also with the objective of promoting domestic manufacturing. The government has also initiated negotiations with various countries for either reviewing the existing free trade agreements (FTAs) or entering into new FTAs for facilitating bilateral trade. These measures are likely to act as a good antidote to the geopolitical challenges faced on account of duty free access to the foreign market.

One of the items on the wishlist of India Inc — a detailed plan for the withdrawal of equalisation levy, after India endorsed the Two Pillar solution of the OECD Inclusive Framework — has not been yet addressed, and leaves hope for further policy and regulatory changes.

Overall, this is a growth-oriented Budget that considers long-term aspirations, is likely to create a multitude of socio-economic opportunities for various stakeholders, and to promote India as a preferred investment destination. These initiatives shall invariably build trust with investors, resulting in more opportunities for private players, whether venturing solo into the Indian market or through the public-private participation route. The key now lies in effective implementation, which involves the integration of various administrative bodies to ensure the envisaged benefits and much more are achieved.

Sanjeev Krishan is Chairman, PwC India. Views are personal, and do not represent the stand of this publication.