Budget 2022 will be all about a balancing act between boosting demand on one hand and strengthening the investment cycle on the other. The Finance Minister (FM) does have some leeway on this front owing to the buoyant tax receipts and early signs of a credit pick-up. However, even with relatively healthy corporate and bank balance sheets, onus will be on public spending on both fronts, given the pandemic-induced uncertainty and disruptions. At the same time, we hope that the FM will look beyond Covid19 and leverage this budget as an opportunity to systematically enhance India’s potential real growth rate.

Expect continued focus on supporting urbanisation through a sustained high spend on public infrastructure and housing, social spending to help mitigate the impact on incomes across a broad spectrum, higher education and healthcare allocation, asset monetisation and tax simplification. In a busy political year, measures to support demand could flow through some income tax relief, rationalisation of select non-GST indirect taxes, and higher farm income support.

Some supportive measures for services sectors that have been hardest hit in the latest Covid19 wave would also be expected. Production-linked Incentives (PLI)/Make in India schemes have generated quite a buzz and there has been good traction across sectors. Expect the government to expand it to cover still more manufacturing industries. The start-up ecosystem in India has had a pretty good year. Hopefully the coming budget will encourage new businesses through various measures such as better capital availability and improved ease of doing businesses. Finally, reduced friction costs in capital markets and further easing capital flow restrictions will remain on the wish list.

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