Budget 2022: Making India future-ready

- Mr. Vinay M. Tonse, MD & CEO, SBI Mutual Fund 

The Union Budget 2022 presented by FM Nirmala Sitharaman had all the ingredients needed to revive a battered economy recuperating from the ravages of a pandemic. It was growth-centric pushed for higher infrastructure spending increased government CAPEX, all to boost manufacturing and investment activity. What’s more, it even included measures to combat climate change and promote the use of renewable energy along with an announcement to issue sovereign green bonds, all to ensure a greener, cleaner, more sustainable and environmentally-sound growth trajectory. 

So as a tax-paying investor, what does the Budget have in store for you? 

Plenty, from a long-term wealth creation perspective. A robust economy will ably support robust financial markets, and a robust financial market offers long-term wealth creation opportunities to its investors. But when you drill down to the details, you will realise that this Budget is perhaps a more progressive one than seen in recent years. 

Cryptocurrencies, bitcoin, non-fungible tokens (NFTs) are no longer simply buzzwords; they have created a din so loud that they can no longer be ignored. So, the government’s proposal to tax transactions related to these assets is, first and foremost an essential acknowledgement of this world of digital assets and currencies, a very progressive move indeed. While a 30% tax on all transactions related to these assets may seem a bit steep to many, this is a much-needed and cautionary move. The curiosity among investors about cryptocurrencies is perhaps a concern for the government, especially since the understanding of these assets is relatively poor currently.  

This is an investment only for those who can afford to absorb losses, which is a tiny community of investors. So, while this announcement might keep away many inexperienced investors, it will undoubtedly pave the way for a measured and regulated space in the future. The government’s decision to float its own digital rupee, which will presumably be the only legal tender digitally, is also a step in this direction, i.e., to create a safe and secure regulatory environment for the digitization of finance. 

On the other side of the banking, spectrum are the investors with accounts in post offices where they have deposited their life savings. The move to digitally integrate all post office accounts with the core banking system will relieve investors of these accounts who can now digitally transfer funds between these accounts. This will also offer them various investment avenues that were perhaps restricted to them. From a larger macro perspective, this deepens the government’s resolve in driving higher financial inclusion. 

Further, the government’s proposal to set up 75 digital banking units by Scheduled Commercial Banks in 75 districts to commemorate the 75th year of our independence is another move to ensure financial inclusion.  

The capping of the surcharge on long-term capital gains across all asset classes at 15%, including the unlisted securities space, is another welcome move. This move will particularly encourage investors of startups, helping to grow overall investor participation in the startup ecosystem.  

Homebuyers can also now rest easy knowing that they can claim an additional deduction of Rs 1.5 lakh till March 2022, from March 2021 earlier. For taxpayers, the government has now proposed opening a window for those who wish to file an updated return in lieu of additional tax payment within the year of assessment. 

Overall, Budget 2022 has tried to bring together the new-age digital world and our traditional financial system to the same table. While there may not be a level-playing field yet, the government has intended to create the right regulatory atmosphere while preparing the infrastructural framework for it. For investors, the government’s intention to step up infrastructure spending is a positive move as it will help in employment generation and overall economic revival. In the long term, this should keep the financial markets upbeat. Therefore, investors are advised to participate in this growth story by staying invested despite short-term market volatility.