Budget 2023: Wish list to propel growth

We have had an interesting start to 2023 with nothing much changing: Russo-Ukrainian war plods along. China’s scrapping of the zero-Covid policy saw record infection but did little to cool global travel, and worldwide economies are hung over from mixing loose monetary policies (printing too much money and then giving it away) with supplies not keeping pace with demand. To top it all, India turned into the most populous nation in the world, putting pressure on our limited resources for years to come. Stubborn inflation and nationalistic economic policies the world over have resulted in a less-than-ideal savings environment. One of the ways the government contributes to economic growth and incentivises savings is via policy documents akin to the Union Budget.

The Union Budget presented by the finance minister is an annual exercise which presents not just changes in government finances (or how they are going to balance their books), it also gives an indication of policies and the direction the government is looking at taking, with regards to growth focus. Given the global uncertainty, the budget, therefore, becomes a key event to watch and to help investors/taxpayers plan for the year ahead.

For investors, taxpayers and ordinary citizens here is our Budget wish list, especially given an economy rebounding from the pandemic.

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First and foremost, personal taxation: Over the years, some reforms in the same way as faceless interactions and speedy refunds have been great.

Unfortunately, we have for decades been in a scenario where tax slabs ignore inflation. Exemption limits, especially given the persistently high inflation, need to be reviewed on a yearly basis. We don’t really expect a change in rates or 80C exemption limits, as the government seems to indicate a gradual move to a simpler tax regime without most standard exemptions.

To generate investable capital from within the country, a reversion to removing either long-term capital gains tax or rationalising Securities Transaction Tax is desirable, along with bringing other listed instruments such as bonds, debt mutual funds, and some ETFs in line with how equities are taxed, even with differential rate. This will provide significant support to savings, as interest rates and financial market volatility cools off and bank deposits are no longer attractive.

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Whether it is hours spent in traffic or waiting in queues at toll booths or daily struggle for transport to work or school, the cost to citizens and the country is immense. What the nation needs is the rapid development of infrastructure (physical) and the implementation of technologies like Fastag to improve efficiencies. We would also want to see rapid advances in other modes of transport akin to developing inland waterways, airports, city heliports and Airport Express in all major cities. The expectation is therefore to see significant resources committed to infrastructure development even with a return to infrastructure bonds.

Larger public pension and insurance, or even mutual fund portfolios, are government debt and listed equity-oriented. These should be made transparent and a few other asset classes added to help mitigate risk arising from country and asset class concentrations.

NPS and other schemes are a good concept but they too could do with better asset class diversification.

Last but not the least, switching investments should be made tax-free if monies are not withdrawn. Currently, the tax department looks at any of these as a deemed sale (without transfer of ownership).

Given the near certainty of a global recession and a slightly slowing Indian economy, such measures will go a long way in stabilising longer-term savings and growth. What will be interesting to watch is how the Reserve Bank manages inflation for the rest of the year and the government’s borrowing programme, which would impact longer-term economic growth.