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Budget 2022-23 – What to expect?

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As the Union Budget is round the corner, excitement and trepidation are all palpable. Let us break it down – Budget expectations are basically of two types. The first is full of wishful thinking, and the second is more about realistic expectations. It is a complex annual exercise undertaken by the Government and goes much beyond presenting the country’s income and expenditure account. It outlines the government’s economic plan for the full next year. 2022-23  assumes even greater significance as the shadow of the Covid third wave continues to plague the economy and its people.

Every year expectations around the Budget are across all sectors of the economy and all sections of the society. Given the pandemic, there is a dire need to boost the economy – drive growth as well as spur consumption. At the same time, there needs to be balanced allocation across priority sectors like Infrastructure, Roads, Railways, Ports & Airports. The Private – Capex also needs a significant boost and can have a positive cascading effect. The re-introduction of Investment allowance and tax-free Infrastructure bonds may well be the catalyst.

The MSMEs, SMEs, Small businesses, Traders, Self-Employed have been significantly impacted by the Covid. The various measure taken by the Government is aiding early recovery but a lot more needs to be done through additional reforms which can bring back demand and also generate employment for vast sections of the society.

The Startup ecosystem in India is very vibrant and the entrepreneurial spirit is helping the Government to fulfill its vision of Digital India, generate large-scale employment, and create quality businesses. This space, therefore, needs continued nurturing and support through tax and other relief measures to make it the top destination for global Investments. More than $38bn was invested in startups during the year. This number needs to get multiplied many times more to support a young country of our size. To improve the pace of financial inclusion in the country and help these companies penetrate non-inclusive markets, the government should consider incentive packages to nurture their growth. It could also include programs to improve investor education that will help bring more individuals into the organized financial fold.

The Pandemic also saw the Rise of Retail Investors and growth in household participation in Capital Markets. The number of Demat accounts have more than trebled and the quantum of investments has also doubled. Despite this surge, we are still below the penetration level of Asian and Western economies. To fulfill the goal of a 5 Trillion Dollar economy, the capital market needs path-breaking reforms to ease the regulatory and tax burden. Any relief in LTCG, STT, etc will be much-awaited steps in the right direction.

Whilst policy measures are well intended, they should help our markets get more efficient, dynamic and allow exponential growth in investor participation. A buoyant and confident capital market will support the disinvestment programs and mega IPOs planned by the Government. The growth in Retail and Domestic Institutions also supports the markets at times of foreign fund outflows and reduces volatility and risks.

The impact of regular equity inflows through mutual funds on the stock market is already evident. If more people enter the financial system, the retail market would also blossom into an attractive proposition for businesses to raise more equity or debt. Take the LIC IPO, for instance. This one IPO is expected to contribute to more Demat accounts in the country. LIC already has approximately 25 crore policyholders, thereby doubling the size of the potential market. The government proposes to offer shares to policyholders.

There is little doubt about how the stock market is an engine of economic growth. After two tough years because of the pandemic, the Indian economy may very well be the fastest-growing major economy in the world again. Encouraging greater equity participation will only support future growth. The union budget of 2022-23 can indeed be the harbinger.