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Below is quote on Budget Expectations and Wishlist By Anshuman Khanna, Director, ValPro

We expect budget 2022 to continue the trend of the previous few budgets of the Modi Government. The budget would be less about tweaking the taxation regime and more a platform to announce the major developmental initiatives of the Government.

With the prospect of the third wave of COVID-19 denting GDP growth curve, the focus of the Government would be in re-invigorating the economy with SOPs and expenditure booster shots.

Our expectations/wishlist on the various aspects of the Budget are summarised below:

1. CAPITAL EXPENDITURE – We expect major initiatives to be announced to stimulate capital expenditure both on private and public side. This has been the thrust of the government since COVID hit the country’s growth. We expect schemes for outlay for development of infrastructure including major spending towards roads, irrigation, healthcare and smart cities.

2. DIVESTMENT– While the government had not been able to meet its divestment target last year (FY 20-21) it will likely fall short of its FY 21-22 target of INR 1.75 trillion as well owing to its inability to see the BPCL and LIC divestment’s through. Nevertheless, the divestment of Air India has been a notable milestone in the current year as it shows the government’s resolve to see difficult tasks through. We expect the divestment target for FY22-23 to be set at about INR 2.0 trillion keeping divestments of LIC, BPCL, ConCor and monetization of other national assets in view.

3. AGRI-REFORMS– The repeal of the farm laws may have been a setback for the government, but we expect a slew of agriculture focused announcements in this budget to demonstrate its continued commitment to this sector. We expect major outlays and SOPs being announced towards irrigation, fertilizers, logistics and agriculture yield enhancement.

4. FOREIGN INVESTMENTS – We expect and hope that the government announces further relaxations in foreign investment norms with more sectors being brought under automatic route for FDI and a roadmap towards capital account convertibility. We further expect streamlining of FPI route for investment in listed securities with reduction in compliance burdens and easing of restrictions on this route.

5. CAPITAL MARKETS – To provide a further impetus to the capital markets, we hope that the government relooks at the figures for collection of capital gains tax on long term gains on listed equity and taxation on capital gains earned by FPIs and reverses its decision to tax these. The loss in tax revenues on this account can be made up by increasing the rates for securities transaction tax which is a much more palatable levy for the market participants. A move by the government to remove tax on long term capital gains on listed equities combined with a move to remove all capital gains tax on FPIs could bring in major capital flows to the markets and thus help the economy tremendously.

6. TAXATION REGIME– We do not expect the government to bring in any major changes to the taxation slabs or rates. The rates have been rationalized considerably and whether it be the corporate taxation or individual, the rates are at an acceptable level. We expect and hope that the announcements in this area would be more towards simplifying the tax regime by removing onerous compliances and complicated exemptions that cause tax leakage. The regime which has been brought in as alternative tax regime wherein the rates are lower without availability of deductions and exemptions, should be integrated into the main regime and the government should directionally progress this initiative to achieve lower tax rates and larger tax net.

7. TAX REVENUES – We expect current year tax revenues of the government to exceed the budget target of INR 15.45 trillion with a robust bounce back of demand in first nine months of the current fiscal which has aided peak GST collections. Direct Tax revenues should also be helped by the high corporate earnings announced in the recent quarters. We expect the government to set a much higher taxation revenue target for FY 22-23, possibly in the vicinity of INR 20 trillion.

8. TAX EVASION– With further disclosures of foreign assets under Pandora Papers, we expect the government to introduce further stringent measures with respect to tax evasion and penalties associated with evasion in case of foreign assets.

9. FISCAL DEFICIT – For the current year, even though the government will likely fall short of the divestment target, we expect the higher tax revenues to make up for such a shortfall. As such we expect the government to meet or even better its fiscal deficit target of FY 21-22 of 6.8% of GDP. For FY 22-23, we expect the government to set a lower fiscal deficit target in the vicinity of 5.5% of GDP which would be a well-received number by the domestic and international community.

With the above basic tenets of the budget being followed we would expect a big thumbs up by the market participants and industry to the government’s budget and reform initiatives. 

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