The Finance Bill Aims For Economic Growth With Digital Ecosystem As a Foundation
Investment and policy decisions in digital infrastructure will help India develop a strong foundation for long-term growth
Finance minister Nirmala Sitharaman's Union Budget for 2022 has an evident inclination towards supporting India's economic growth journey resulting in India becoming the fastest growing economy globally. While the budget has some strong growth support measures for all the sectors, it identifies technology as a critical sector to provide a digital ecosystem as a foundation for growth to the business and economy as a whole. Investment and policy decisions in digital infrastructure will help India develop a strong foundation for long-term growth.
A focus on fundamentals
Strong fundamentals are key, and the announcement of significant investment in building up India's digital backbone says a lot about the government's determination to usher the country towards a digital future. This can be seen in the form of contracts that are to be awarded to lay optical fiber cables to hundreds of thousands of villages and the investment scheme for design-led manufacturing to help build up our 5G ecosystem. In addition, the upcoming 5G spectrum auctions will also help speed up the adoption of faster, more efficient mobile networks to connect India.
These fundamentals also include fintech, which is an essential component in building accessible financial services for the country. The government recognizes it, and INR 1,500 crore. commitment towards boosting the digital payments ecosystem in the rural sector is an exciting development. Connecting India's 150,000 to the core banking system is also a good move and will undoubtedly encourage the development of financial inclusivity in the country. The launch of digital currency is a very positive step towards tech-enabled new-age financial solutions aiming to resolve the country's unmet financial needs, which traditional infrastructure could not resolve.
It is clear that there is a simultaneous focus on building IT infrastructure and promoting homegrown innovations and SAAS-based solutions for creating a digital ecosystem that works well for India's socio-economic environment.
Good news for start-ups and MSMEs
The news is, on balance, quite good for start-ups and MSMEs as well. It's readily apparent from the budget that the government is committed to developing a robust start-up ecosystem in the country. Extending tax benefits to new start-ups by one year is a welcome move as it will help start-ups focus more on growth and innovation rather than costs. Capping the surcharge on long-term capital gains will also encourage investors, as will the decision to set up an expert committee tasked with streamlining venture capital and private equity investments. Other announced measures that reduce compliance burden are also very welcome.
Startups and small businesses, and new ones in particular, have been struggling with the impact of the global health crisis in some form or the other. Some companies had to adapt overnight to new digital strategies, while others had to come up with entirely new ways of doing business. These pivots take time, and in a brilliant move the government extended additional support to small businesses and start-ups impacted by the health crisis. Extending ECLGS (Emergency Credit Line Guarantee Scheme) to March 2023 and allocating an additional INR 50,000 crore for the same is very useful. Revamping CGTMSE should also help with employment.
Together, these measures should also go a long way towards improving liquidity for start-ups and MSMEs.
Increased spending on education is a necessary and welcome step
The most heartening news from the Union Budget announcement was the ~12 per cent increase in spending towards education and upskilling of youth. With rapid digitization on the horizon, the government recognizes the importance of upskilling the youth. The new employment and work will demand very different skill sets, and hence incorporating the new learnings and upskilling will be highly crucial for jobs and equal opportunities.
The budget has allowed 25 per cent of defense spending to go to start-ups, which is a big deal in itself. Some of this funding is also going towards research and academia, encouraging innovation in the country's educated youth. Initiatives such as expanding the one-class one-channel scheme for TV, establishing a digital university, and more will go a long way towards reducing disparity, improving accessibility, and improving employability. Country's talent is and will be the most defining success factor of the economy. Therefore, skills and Talent building should have a focus in every single budget.
Overall, I'm encouraged by this budget's emphasis on building up India's digital ecosystem and network backbone, both of which should open up exciting new opportunities for start-ups and small businesses.