Ushering in a new era of sustainable growth

Some of the key themes that emerge are:

A boost for infrastructure

With a 33% increase in capital spending for infrastructure development, the government has sent a clear message that it is ready to double down on its promise to stimulate the economy. This increased spending will further strengthen the infrastructural space. The creation of an urban infrastructure fund is also a welcome initiative and will not only stimulate investment, but will also create many more jobs.

Commitment to “green growth”

The focus has been on sustainable growth, or ‘green growth’, and this has been one of the key themes this year. From a boost to green hydrogen players to an impressive expenditure of INR 35,000 crore for energy transition and a green credit initiative for businesses, several interesting announcements were made in the budget speech. These initiatives demonstrate India’s commitment to its Sustainable Development Goals and are expected to increase opportunities for domestic and global businesses. It also shines a spotlight on environmental, social and governance themed funds and investors, encouraging more players to participate.

Focus on inclusion

Financial inclusion is another key theme that emerged in several places in this year’s budget. Reiterating the focus on technological innovation in financial services and digital payments, the government announced the establishment of a National Financial Information Registry, a central repository of financial information. Along with simplifying KYC processes and expanding the reach of DigiLocker, these steps are laudable and will surely see the fintech space abuzz in the coming months. However, it will be absolutely crucial to ensure that the digital infrastructure can keep up with these new initiatives and that a high rate of growth does not lead to an increase in disparities.

The future is upon us

Artificial intelligence (AI) is one such aspect of technological advancements that, when used effectively and ethically, can bring about widespread transformative change in all areas of life and work. It is extremely encouraging to see the Indian government thinking ahead and looking to use AI in a range of sectors such as health, agriculture and sustainable urban development. The establishment of 100 laboratories to develop 5G applications, 3 centers of excellence in AI to develop cutting-edge solutions, as well as the launch of a National Data Governance Policy to facilitate access to anonymized data are strong progress on this front.

Ease of Doing Business – The Work Goes On

Improving the Ease of Doing Business (EODB) in India has been a priority for the government for some time now. In this year’s budget as well, we have seen several measures aimed at this objective. An impressive 39,000 compliances have been reduced and more than 3,400 legal provisions have been decriminalised. Certain offenses under the GST Act have also been decriminalised, alleviating many concerns. Simplified KYC, unified filing process, increased DigiLocker reach and a common business ID are all measures that will help India improve its position in the global EODB rankings.

Another interesting proposal is a voluntary settlement system with standardized terms in the event of government enterprise contract disputes where an arbitral award is challenged in court.

GIFT City in a nutshell

On the front of Gujarat International Finance Tec-City (GIFT City), delegating the powers of the Special Economic Zone to the International Financial Services Center Authority (IFSCA) and making the IFSCA a one-stop-shop authority for all relevant financial services regulators strengthens its position as a unified regulator. Allowing acquisition financing by offshore banking units in GIFT City and recognizing a GIFT City arbitration award as an international arbitration award are all important steps towards improving the EODB for foreign players in GIFT City.

New assessment requirement for non-resident investments

Although the exact provisions will require more thought, the budget proposes that a non-resident investor should not invest above fair market value when investing in shares of an Indian company, as any money invested above above fair market value will be treated as income in the hands of the corporation and taxed accordingly. This can potentially limit the ability of Indian companies to attract higher amounts of foreign investment by receiving an equity premium above the fair market value of equity for growth purposes. Although there has been such a provision applicable to Indian resident investors since 2012 to “prevent the generation and circulation of unaccounted for money through share premium”, it is now proposed to extend the same provision to non-residents.

The road ahead

A first reading of all the budget proposals points to a laudable roadmap ahead, centered on inclusive and sustainable growth. The milestones are ambitious and implementation on the ground will be a critical success factor. This is especially the case when it comes to technological innovations and new laws to cover dynamic areas. The rate at which our legislation and infrastructure progress will also be a crucial ingredient in the success of these plans and in building a sustainable future.

– The author, Haigreve Khaitan, is a partner at Khaitan & Co, one of India’s leading full-service law firms. The opinions expressed are personal.