Mohandas Pai: A transformative budget that will ensure India’s GDP growth will stay on the fast lane

The budget demonstrates that the social programmes of the government have been met in full in the 2022-23 fiscal.

The tenth and last full Union Budget of the NDA (National Democratic Alliance​)  government has indeed met substantially the expectations that citizens had from the government. The Budget shows a very robust increase in tax collections, with Revised Estimates (RE) of 2022-23 growing to Rs 30.4 lakh crore from Budget Estimates (BE) of Rs 27.57 lakh crore, a growth of 10.26 percent.

The tax collection could increase further as Gross Domestic Product (GDP) is growing around 15 percent (nominal). Tax buoyancy over the last two years shows that good governance, increased digitisation and use of technology along with stable taxes indeed improved tax collection.

Spending Wisely

The Budget shows a very enhanced quality of spending, especially meeting the capital expenditure (capex) target of Rs 7.5 lakh crore, sticking to the fiscal deficit of 6.4 percent, while meeting the increased spending on subsidies and other heads. It also shows that during the year, the economy has performed very well and grown to Rs 273 lakh crore from Rs 236 lakh crore in the previous year.

The budget also demonstrates that the social programmes of the government have been met in full in the 2022-23 fiscal. The budget estimates for the year 2023-24 also carries this forward. The social sector programmes have been funded in full, like the Awas Yojana to make sure that every Indian has a roof over their head, and schemes for making sure that the necessities of life are given to every Indian like free food. The biggest achievement of Prime Minister Narendra Modi has been the huge effort to ensure every Indian gets the bare necessities of life. This will build the New India of our dreams.

Capital expenditure has been increased to Rs 10 lakh crore, a massive 33 percent increase which is very good because India needs to invest massively in capex with huge increases in railways and road infrastructure . Increased capital expenditure will accelerate the growth of the economy and productivity, and reduce costs. The government has also focused on urban regeneration, on job creation, on investments in the financial sector, and reforms in the financial sector.

Disappointment For Startups

As far as startups are concerned, there have been some small tinkering but the big issues of the startups regarding the reduction of the long-term capital gains from 20 to 10 percent, shifting of the tax on ESOPs (employee stock ownership plans) from the point of exercise  to the point of sale, and other efforts to ease the compliance burden like a policy regime for redomiciling startups have been ignored.

There is a big sense of disappointment as far as startups are concerned as these are sore points for long. Extending the so-called tax-free period for startups is not going to have a major impact on startups in the country because most startups will spend more money on open and build-up losses in the initial period of their operation. Reducing the exemption from angel tax for non-resident investment is a big blow.

Taxes: A Mixed Bag

As far as taxes are concerned, reducing the highest effective tax rate from 42.7 percent to around 39 percent is a good move. This will possibly prevent more HNIs (high net-worth individuals) from moving away from the country.

Increasing the number of joint commissioners by 100 to reduce tax disputes is also a good move and making sure the tax administration is streamlined is indeed a good reform. The focus on reducing the total money tied up in tax litigation, the focus on reducing compliances, and the focus on doing away with criminal proceedings for minor transgressions of law is indeed going to improve the ease of doing business.

As far as individuals are concerned, on the tax rate, the movement forward has been very slow. The increase in the standard deduction is very marginal for individuals and the new tax regime will now have five slabs instead of six. It should have been only three and it should have been steeper.

The FM has said only Rs 35,000 crore will be forgone for income taxes, which is very small compared to the Rs 9 lakh-plus crore that individuals will be paying as income taxes. The FM has missed a golden opportunity to simplify the tax lab into three tax slabs for people as an alternative. The new tax regime does not seem very attractive to very many people because along with all the exemptions in the old tax slab, the differential is not very high. Capital gains reforms have been totally missed. The small reduction in custom duty is marginal. Income tax reforms should have been more radical.

Transformational, Overall

Overall, one can say that this is indeed a transformational budget, the increase in capex spending, their focus on many social schemes being funded, the focus on making sure that every Indian gets the necessities of life, the focus on bringing fiscal reforms in reducing the fiscal deficit to 5.9 percent will make sure India grows faster in 2023-24.

Catch Moneycontrol's full coverage of Budget 2023 here

The targeted nominal growth rate of 10.5% would be easy to achieve. The reduction in the fiscal deficit means that there will be more capital available for the private sector to invest. A truly transformational budget for all and one must congratulate the finance minister on making sure that the last 10 years have been a very good time for the citizens of this country.

(As told to Mansi Verma)

TV Mohandas Pai is Chairman, Aarin Capital Partners. Views expressed are personal and do not represent the stand of this publication.