📰 Govt. proposes new SEZ law
Reform to help States become partners in development: Minister
•The government on Tuesday proposed to replace the existing law governing special economic zones (SEZs) with a new legislation to enable States to become partners in ‘Development of Enterprise and Service Hubs’.
•The existing SEZ Act was enacted in 2006 with an aim to create export hubs and boost manufacturing in the country. However, these zones started losing their sheen after imposition of minimum alternate tax and introduction of sunset clause for removal of tax incentives.
•These zones are treated as foreign entities in terms of provisions related to customs. Industry has time and again demanded continuation of tax benefits provided under the law. Units in SEZs used to enjoy 100% income tax exemption on export income for the first five years, 50% for the next five years and 50% of the ploughed back export profit for another five years.
•Presenting the Budget 2022-23, Finance Minister Nirmala Sitharaman said: “The Special Economic Zones Act will be replaced with a new legislation that will enable the states to become partners in Development of Enterprise and Service Hubs.” This will cover all large existing and new industrial enclaves to optimally utilise available infrastructure and enhance competitiveness of exports, she noted.
•The government, she said, will also undertake reforms in customs administration of SEZs with a view to promote ease of doing business.
•“We will also undertake reforms in Customs Administration of SEZs and it shall henceforth be fully IT driven and function on the Customs National Portal with a focus on higher facilitation and with only risk-based checks,” the Minister said.
•This reform will be implemented by September 30, 2022.
‘It will lead to a cheaper currency management system’
•In a big ‘no’ to cryptocurrencies, the digital rupee will be introduced in India during the financial year 2022-23, Union Finance Minister Nirmala Sitharaman said on Tuesday while presenting the Union Budget.
•“Introduction of Central Bank Digital Currency will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system,” Ms. Sitharaman said.
•“It is, therefore, proposed to introduce the digital rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23.”
•“Digital rupee is one of the most-awaited announcements. It is important to understand how other crypto assets will be taxed and whether there will be any specific benefit given to the digital rupee,” said Pranay Bhatia, partner and leader, tax and regulatory services, BDO India.
•“With no deduction for cost, tax rate at 30%, tax on mining/gifting and no offset of loss against income from other sources, the Finance Minister has given the much-needed clarity on crypto transactions. However, tracking such transactions in the absence of a central regulator may be challenging,” he noted.
📰 Push for promotion of drones through start-ups
Special purpose vehicle for Air India’s debts gets Rs. 9,259 crore; allocation slashed for Civil Aviation Ministry
•The Union Budget pushed for promotion of drones through start-ups and skilling at Industrial Training Institutes (ITIs).
•“Start-ups will be promoted to facilitate ‘Drone Shakti’ through varied applications and for Drone-As-A-Service (DrAAS),” Union Finance Minister Nirmala Sitharaman said.
•Courses for skilling will also be started in selected ITIs across all States. Drones will also be promoted for crop assessment, digitisation of land records, spraying of insecticides and nutrients.
•Barring the mention about drones, there were no new schemes or initiatives announced for the aviation sector. With Air India now privatised and handed over to Tata Sons, the budgetary allocation for the Ministry of Civil Aviation was slashed to more than half of the current fiscal. It has been allocated Rs. 4,574 crore for the next fiscal.
•The special purpose vehicle (AI Assets Holding Ltd.), set up by the government in 2019 to clean up Air India’s balance sheet to attract private investors and houses non-core assets of Air India and its liabilities, has been allocated Rs. 9,259 crore.
•“The provision is made for repayment of past government guaranteed borrowings, sale and lease back rentals and past dues and liabilities of AI Ltd.”
•The Minister said Rs. 51,971 crore for Air India debts was part of its revised estimate of capital expenditure of Rs. 6.03 lakh crore for last fiscal. This was for the purpose of “settlement of outstanding guaranteed liabilities of Air India and its other sundry commitments”. Budget carrier IndiGo’s CEO Ronojoy Dutta rued that expectations of “tax concession to aviation industry in the forms of cut in aviation turbine fuel excise duty and allocation of concessional finance to airlines to help us come of the pandemic” were not met.
•The Ministry of Tourism received 18.42% higher allocation at Rs. 2,400 crore. A major portion of the outlay — Rs. 1,644 crore — has been earmarked for development of infrastructure for tourism development, while Rs. 421.5 crore is set aside for promotion and publicity activities.
•A new Loan Guarantee Scheme for COVID–affected Tourism Service Sector (LGSCATSS) has been started during the current financial year with an allocation of Rs. 62.5 crore for five years. It provides guarantee free loan up to Rs. 10 lakh each for government-approved travel and tourism stakeholders such as tour operators and travel agents and up to Rs. 1 lakh to regional-level tourist guides approved by the government.
📰 Agri-tech: drones, start-up fund in focus
A scheme through public-private partnership to be launched for farmers
•The emerging agri-tech sector has been enthused by the abundance of digital farming references in the Union Budget speech on Tuesday.
•“For delivery of digital and hi-tech services to farmers with the involvement of public sector research and extension institutions along with private agri-tech players and stakeholders of agri-value chain, a scheme through PPP [public-private partnership] mode will be launched,” said Finance Minister Nirmala Sitharaman.
•She added that a fund with blended capital, raised under the co-investment model, would be facilitated through NABARD. “This is to finance start-ups for agriculture and rural enterprise, relevant for farm produce value chain. The activities for these start-ups will include, inter alia , support for FPOs, machinery for farmers on rental basis and technology, including IT-based support,” said Ms. Sitharaman.
•With a wider focus on drone technology, the Minister promised to promote the use of “kisan drones” for crop assessment, digitisation of land records, and spraying of insecticides and nutrients on fields. In fact, the Budget speech emphasised the efficient use of land resources via technology. “States will be encouraged to adopt Unique Land Parcel Identification Number to facilitate IT-based management of records. The facility for transliteration of land records across any of the Schedule VIII languages will also be rolled out,” she said.
•“The adoption or linkage with National Generic Document Registration System (NGDRS) with the ‘One-Nation One-Registration Software’, will be promoted as an option for uniform process for registration and ‘anywhere registration’ of deeds and documents,” said Ms. Sitharaman.
•“The expansion of technology focus from just tractors and agri-machinery to ‘kisan drones’ shows a rising interest in the application of IOT in the sector,” said AgroStar CEO Shardul Sheth.
📰 16% hike in healthcare sector allocation
However, Rs. 83,000 crore outlay almost equal to last year’s actual spend; zero allocation for emergency response fund
•The government perceives the pandemic to be in retreat, going by Union Finance Minister Nirmala Sitharaman’s Budget speech as well as a perusal of the Budget documents.
•In 2021-22, the Budget documents show, the Centre ended up spending Rs. 82,920 crore — nearly Rs. 11,000 crore more than the Budget estimate. This was largely in the form of ‘grant in aid’ to States.
•It proposes to spend around the same — Rs. 83,000 crore — over the coming financial year. The 2022 Budget estimate is nearly 16% more than the Rs. 71,000 crore budgeted last year.
•Further evidence that COVID-19 is seen as a diminished threat this year comes from allocation to a budgetary head called “India COVID-19 Emergency Response and Health System Preparedness” that saw an allotment of Rs. 12,359 crore last year but has seen zero allocation in the present year.
•In her address, however, Ms. Sitharaman stressed on improving access to mental healthcare facilities via telemedicine and digital healthcare facilities.
•Her speech did not mention vaccines, bettering hospitals, improving public health facilities — all major points that found mention in the previous two years.
•“I recognise we are in the midst of an Omicron wave, with high incidence but milder symptoms. Further, the speed and coverage of our vaccination campaign has helped greatly. With the accelerated improvement of health infrastructure in the past two years, we are in a strong position to withstand challenges. I am confident that with Sabka Prayas (everybody’s effort), we will continue our journey of strong growth,” Ms. Sitharaman said in her opening remarks.
•As of Monday, India has double vaccinated more than 75% of its eligible population, even as it posted close to 1,67,000 new cases in the past 24 hours.
•While allocations have not been hiked, the Centre also expects to spend the same as it did last year on health research.
Health research
•In 2021-22, the Centre allotted Rs. 2,663 crore for health research but spent Rs. 3,080 crore. This year, it has budgeted Rs. 3,200 crore.
•The capital expenditure that the Health Ministry expects to make in the coming year is Rs. 5,632 crore or about Rs. 1,000 crore less than what was spent last year. The Pradhan Mantri Ayushman Bharat Health Infrastructure Mission (PMABHIM) has seen a substantial increase from Rs. 585 crore last year to Rs. 4,177 crore this year. A scheme to improve pandemic preparedness via research and development as well as strengthen “bio security” has also been hiked from Rs. 140 crore to Rs. 690 crore.
📰 5G services auction, roll-out likely in 2022-23, says FinMin
TRAI finalising process, says Telecom Minister Vaishnaw
•Union Finance Minister Nirmala Sitharaman on Tuesday said the government will auction telecom spectrum in 2022, which will facilitate private players to roll out 5G services before March 2023.
•“Telecommunication in general, and 5G technology in particular, can enable growth and offer job opportunities. Required spectrum auctions will be conducted in 2022 to facilitate roll-out of 5G mobile services within 2022-23 by private telecom providers,” the Minister announced during the Budget speech.
•Speaking to reporters post the Budget presentation, Telecom and IT Minister Ashwini Vaishnaw said the Telecom Regulatory Authority of India (TRAI) was working on its recommendations for the spectrum auction and these were expected to come by March. At the same time, the Department of Telecom, he said, was preparing for auctions and readying the NIA (notice inviting applications) and other documents.
•“As soon as the recommendations come, we can go ahead with the auction and then start the roll-out of 5G services in 2022-23,” he said.
•In her speech, the Finance Minister also added that a scheme for design-led manufacturing would be launched to build a strong ecosystem for 5G as part of the production-linked incentive scheme.
•Further, to enable affordable broadband and mobile service proliferation in rural and remote areas, 5% of annual collections under the Universal Service Obligation Fund (USOF) will be allocated. This will promote R&D and commercialisation of technologies and solutions, she said.
•“Our vision is that all villages and their residents should have the same access to e-services, communication facilities, and digital resources as urban areas and their residents. The contracts for laying optical fibre in all villages, including remote areas, will be awarded under the BharatNet project through PPP in 2022-23. Completion is expected in 2025. Measures will be taken to enable better and more efficient use of the optical fibre,” Ms. Sitharaman added.
Fall in revenues
•According to the Budget documents, the government has lowered its estimates of revenue from the telecom segment to ₹52,806 crore for the upcoming financial year (2022-23).
•However, for the current fiscal, the government estimates the receipts to be higher at ₹71,959.24 crore as against the budget estimates of ₹53,986.72 crore from ‘other communication services’.
•Receipts under 'other communication services' mainly relate to the licence fees from telecom operators and receipts on account of spectrum usage charges.
BSNL bonanza
•The government will make a capital infusion of ₹44,720 crore in state-owned BSNL in 2022-23 — the majority of this year’s estimated capital expenditure, the Budget documents show. “The provision is made for capital infusion for 4G Spectrum, technology upgradation and restructuring in BSNL,” as per the document.
•Additionally, the government will provide additional financial support of ₹3,300 crore to the telecom firm for voluntary retirement scheme and ₹3,550 crore as grant-in-aid for payment of GST.
•Sabyasachi Majumdar, Senior Vice-President & Group Head, Corporate Ratings, ICRA Limited, said overall, the budget focussed on increasing the digital penetration in the country by way of e-learning, digital health programmes and digital banking. This is likely to propel the usage of telecom services.
•Likewise, Sandeep Aggarwal, Chairman, Telecom Equipment Promotion Council (TEPC), welcomed the announcement of 5G auctions. However, he called for ‘free or low cost spectrum’ to be given to all users and operators initially, and when the market matures in 2-3 years, the government can go for auction. “This will get better prices and encourage healthy competition in the telecom sector…duty reduction in the telecom sector will be conducive to growth,” he added.
•Peeyush Vaish, Partner and Telecom Sector Leader, Deloitte India noted that the USO funds have historically been used for the rural infrastructure roll-out. A 5% allocation towards R&D and commercialization of the technology could help some of the indigenous niche players building up technologies around O-RAN and Private networks.
•“FM’s announcement around the 5G spectrum auction, 100 percent fiberisation with PPP model will provide the required impetus to build upon ubiquitous and reliable internet connectivity. Thereby, bridging the digital divide for a conducive and inclusive development of the nation in keeping with the ‘Digital India’ initiative. Further, design-led initiatives for 5G under the PLI scheme and 5% of USOF for R&D purposes will strengthen the ‘Make in India’ initiative, and contribute to making India a global manufacturing hub,” Nitin Bansal, MD, India & Head-Networks - Southeast Asia, Oceania, and India at Ericsson, said.
📰 Budget provides tax sops for IFSC
International Arbitration Centre will be set up in GIFT City
•Taking forward its efforts to further promote the International Financial Services Centre (IFSC) in Gujarat, the government has proposed Income Tax incentives to promote various business activities such as ship leasing and financing, offshore fund management and offshore banking activities at GIFT City. The Union Budget has proposed to provide that income of a non-resident from offshore derivative instruments, or over-the-counter derivatives issued by an offshore banking unit, income from royalty and interest on account of lease of ship and income received from portfolio management services in IFSC shall be exempt from tax, subject to conditions.
•Further, it has allowed world-class foreign universities and institutions to offer courses in Financial Management, FinTech, Science, Technology, Engineering and Mathematics, free from domestic regulations, except those by IFSCA to facilitate availability of high-end human resources for financial services and technology in GIFT City, Gujarat.
•“An International Arbitration Centre will be set up in the GIFT City for timely settlement of disputes under international jurisprudence,” Finance Minister Nirmala Sitharaman said in her Budget speech.
•“Services for global capital for sustainable and climate finance in the country will be facilitated in the GIFT City,” she added. Manoj Purohit, partner and leader – financial services tax, BDO India, said, the move to allow financial institutions and universities to set up base will give boost to human resources development and expansion in GIFT IFSC.
•Tapan Ray, MD & Group CEO, GIFT City, in a statement said , “International arbitration centre will strengthen the dispute resolution mechanism at GIFT IFSC and enhance ease of doing business at GIFT,” he said.
📰 FM moots ₹19,500-cr. push for solar manufacturing
‘This opens up huge job opportunities and will take the country on a sustainable development path’
•The Centre has said it is committed to “facilitate” domestic manufacturing for the solar energy sector by looking to add 2,80,000 MW of installed capacity by 2030. To this end, Finance Minister Nirmala Sitharaman said the government envisioned an “additional allocation” of ₹19,500 crore as a “production-linked incentive” for manufacturing solar modules.
•She referred to Prime Minister Narendra Modi’s statements in Glasgow at the COP 26 last November of India striving to achieve ‘net zero’ carbon emissions by 2070. As part of this, India would increase its non-fossil energy capacity to 5,00,000 MW by 2030 and meet 50% of its energy requirements from renewable energy by 2030.
•“This strategy opens up huge employment opportunities and will take the country on a sustainable development path. This Budget proposes several near-term and long-term actions accordingly,” she said.
•The Central Electricity Authority in its latest assessment has said as of early November, solar accounted for 11.8% of the installed capacity and had increased from 11.3% from four months ago. In the run-up to COP-26, the U.S. and India agreed to collaborate towards installing 4,50,000 MW of renewable energy by 2030.
•India’s installed power capacity is projected to be 4,76,000 MW by 2021-22 and is expected to rise to at least 8,17,000 MW by 2030.
•Observers lauded the references to “climate action”. “By referring to climate action as a sunrise sector and employment generator, the Budget 2022 had sent an important signal to markets, financial institutions and the workforce. We now need the power of government incentives, aggregation and de-risking for clean energy to be complemented by standards for low-carbon materials, skilling for battery recycling, and consultative processes for green infrastructure projects,” said Ulka Kelkar, Director, Climate Programme, World Resources Institute, India.
📰 Laying the foundation for Digital India 2.0
While there is mention of light touch regulation for AI, Green Energy, Clean Mobility, more was expected to accelerate growth in these sunrise sectors.
•We still do not know if the worst is over. Neither do we know which way the wheels of fortune will swing with the Corona virus and what will be the impact of the next mutation. The oils prices are threateningly high, and drums of war are heard in Ukraine & Middle East.
•But with all these risks, the FM presents the budget for a country that is a bright spot in an otherwise dark horizon. At 9.2%, India is the fastest-growing, large economy with over $630 billion of foreign reserves equaling 13 months of imports, inflation is under control and stock markets and corporate results shinning positively, and vaccination is a success with 93% of eligible population getting single dose and 70% fully vaccinated.
•But the FM must know that there is a dark underbelly to the bright spot. That underbelly is unemployment rate. Officially, 7.2% is the unemployment rate but reality is far worse. It is possibly the single greatest challenge that the FM must address through her Budget.
•Clearly the FM has stepped up to the challenge. By allocating ₹7.5 Lakh crore in FY 23, which is 35% higher than previous year, she has clearly set the right tone. Infrastructure has triple effect. First employment, then revival of core sector and lastly productivity of the economy. We could not have asked for more.
•Further, she has increased the Financial Assistance to States for capital Investments from ₹10,000 crore in FY22 to ₹1,00,000 crore in FY23. Clearly States are getting the right signal that they are partners with the Centre for building modern India. A large part of this focus is on PM Gatishakti, the initiatives to focus on logistics through development of roads, railways, airports etc. to ensure efficient movement of goods and this is aided by 100 multi-modal cargo terminals. Clearly, if Make In India is to succeed, Gatishakti initiative will play a vital role in making the cost of production competitive.
•Digital India is another theme that runs across the budget. From recognizing virtual assets as a taxable asset class, issuing digital currency, e-passports, Digital University, Council for AVGC (Gaming, Animation Sector), emphasis on digital banking, land record digitization, facilitating payment platforms, auctioning 5G spectrum, building optical fibre network are efforts that will build up digital capacity of the country, improve efficiency and further boost employment in the services sector.
•The Amrit Kal initiative, plan for India completing 100 years post-Independence, presses the right button. Emphasis on urban planning and development, when 50% of India’s population will live in urban areas clearly is the right priority and will deeply improve quality of life and ease of doing business.
•So, what did the Budget miss? Healthcare was expected to get a greater share of allocation. The pandemic has exposed the deficiencies in hospital capacity. One would have expected a public-private initiative with PLI type of incentives to be thrown open to this sector. Privatization, the big initiative in last budget along with Asset Monetization has under delivered. One would have expected reforms to ensure that those get back on track.
•While there is mention of light touch regulation for AI, Green Energy, Clean Mobility, more was expected to accelerate growth in these sunrise sectors.
•In closing, this Budget is foundational in its approach. It has its eyes set on 8.5% growth for FY23 and presses the right button to get the country there. An 8.5% on top of 9.2% in FY23 will bring India into the spotlight for investments. But there is a lot to be done before we get there. The devil is in implementation and with State elections a distraction and the ongoing pandemic, Team India has its hands full of challenges. The Budget has loaded the dice in favor of Team India. Now the time has come for it to deliver on its promises.
