Policy should incentivize more international friendly and domestic capital, debt and equity, to flow into Indian financial assets

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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Policy should incentivize more international friendly and domestic capital, debt and equity, to flow into Indian financial assets

[box type=”shadow” align=”” class=”” width=””]FinTech

Yashraj Erande, Managing Director and Partner, BCG

The Union Budget presents the opportunity to sow the seeds to India becoming a global FinTech superpower. India has the potential to become the global leader in financial technologies and Indian FinTechs can become the channel for attracting international capital (debt and equity) into Indian asset classes. In a sense, India can export financial technologies while importing global capital.

Policy should incentivize more international (friendly) and domestic capital, debt and equity, to flow into Indian financial assets. The long end of the yield curve needs to be deepened significantly to ensure India can create long gestation assets. Special financial incentives as well as some risk protection measures will go a long way. MSME customers and FinTechs operate at the shorter end of the yield curve.

Policy support in the form of modifying default protection programs for MSMEs and self-employed to include loans under OCEN and co-lending arrangements can unlock significant value. A national co-lending portal would also go a long way in scaling up credit flow to MSMEs. Finally, there are policy hurdles for newer entities to access government programs despite being well capitalised because of years-in-business cut-offs. These need to be reviewed,” 

From a technology perspective, investment corpus could be created to conduct research in core technologies specifically Cloud, Artificial Intelligence and Decentralised Finance (DeFi). Just like investing in IndiaStack turbocharged payments and KYC infrastructure in India, now is the time to invest in fundamental research in technologies that can change global finance and multiple other industries. Multiple innovation hubs in different parts of the country can be created in public-private partnerships to do fundamental research.

Niraj Hutheesing-Founder and Managing Director, Cygnet Infotech

“The Union Budget in India is always eagerly awaited by everyone, from corporates to taxpayers, with all hopes attached to having simplified compliances. In the wake of the third Covid wave, there is a certain expectation in terms of rebates and relief from the Finance Ministry on Indirect and Direct taxes. Stimulus packages and tax exemption policies designed for the COVID impacted era would help revitalize the economy. Moreover, the duration of compensation cess ends in June 2022, hence it would be great if the government could look at providing an extension on this by six months or a year.

The Ministry of Finance may have some surprises in their bags for the GST regime specifically from a sectoral perspective, hence as a leading industry player we are looking forwarRd to this. In order to provide a fillip to business growth the government is also expected to introduce financial aid to build a strong digital infrastructure for MSMEs and startups. This will help further strengthen organizations, enabling them to grow and thrive in today’s remote work environment.”[/box]

[box type=”shadow” align=”” class=”” width=””]Chemicals

Amit Gandhi, Managing Director & Partner, BCG

India is the sixth largest chemicals producer in the world and has witnessed 12-18 months of strong performance. Looking ahead, the opportunity for the Indian Chemicals industry is clear: to grow to a $300bn+ industry by 2025 and create a trade surplus.

The upcoming Union Budget could accelerate the journey by addressing three themes:

  • Incentives to drive capital investments: The introduction of a PLI (Production-Linked Incentive) for chemicals would spur investments, both on key intermediate building blocks (reducing our dependence on imports), as well as specialty chemicals (accelerating our share of global trade). This could be complemented by the setup of condo crackers with integrated downstream ecosystems.
  • Funds for innovation and cutting-edge research: The setup of dedicated chemical research centers on process, sustainability and fundamental R&D would significantly enhance India’s competitiveness. This could be linked with fiscal support for innovation (e.g., “First in India”), and the setup of an “Innovation Center for Chemical Operations” to showcase and foster adoption of digital across the value chain.
  • Streamlining the supply chain: In addition to infrastructure investments, chemical-specific initiatives could help ease documentation and compliance – for example, a digital centralized repository of all chemicals, and a REACH-like unified approach for India.

Together, these interventions would create a strong foundation to unlock the true potential of the Indian Chemicals industry.[/box]

[box type=”shadow” align=”” class=”” width=””]Healthcare and Lifesciences

Rahul Guha, Managing Director & Senior Partner, BCG

I would like to see the healthcare industry get a big focus in the Union Budget 2022-23. We need to increase the public and private healthcare infrastructure manifold and I hope to see some focus in these areas.

It would be great to see some stimulus for setting up healthcare facilities and infrastructure, as well as an impetus for digital initiatives to connect the healthcare ecosystems. This will help bring doctors, caregivers and patients on a consolidated platform and improve healthcare outcomes.

Additionally, our local biopharma industry has stepped up to deliver affordable drugs and vaccines at a rapid pace. The policies and focus that helped us deliver 150 crore vaccine doses in record time should be expanded to help us get more innovative therapies in the hands of the Indian patient.

 Anand K. CEO, SRL Diagnostics

“The pandemic has brought the diagnostic industry into focus. We have realised the importance of accurate testing and how accurate lab insights can actually bring down health and hospital costs for a patient. It is  time the government looks at minimum quality standards for the industry and also appoint a nodal agency to standardise lab tests across the country.

The government could look at reducing the high custom duty on the import of diagnostic equipment and kits. This can help large laboratories like SRL to improve efficiencies and increase investments in R&D. Easing the cost burden by giving input tax credit for GST will aid the entire healthcare industry to reduce input costs.

We have also witnessed some level of shortage of kits for COVID and COVID allied tests during the first two waves as we are dependent on imports and international logistics. Taking a cue from the CLIA standards in the US for lab developed tests, our regulatory bodies like CDSCO can open up the regulatory framework that will help laboratories build indigenous tests customised to the Indian population, encourage more research and foster innovation. This will reduce our dependence on imported kits for laboratory tests. India could become self-reliant in test kits in a few years with the right kind of support from the policymakers and the government.[/box]

[box type=”shadow” align=”” class=”” width=””]Technology, Media, and Telecommunications

Vikash Jain, Managing Director & Senior Partner, BCG

India is at a point of inflexion in leveraging tech. The last two years has demonstrated the resilience of the sector. While the services led export, story continues to be very strong, the tech industry needs to know to deal with the emerging challenges with new operating, and emerging demands of talent and skills. On the other hand, we have the massive opportunity to address the informal economy, the self-employed, the SMBs and the underserved ‘Bharat’ through tech and platforms which can create a massive virtuous cycle that can drive real transformation. In addition, 5G in telco, digital media and manufacturing are other big themes that are playing out which will all require support and enabling policy framework to ensure this sector continues to play a pivotal role in India’s transformation story.[/box]

[box type=”shadow” align=”” class=”” width=””]Consumer Products

Abheek Singhi, Managing Director & Senior Partner, BCG

Private consumption accounts for nearly 60% of India’s GDP and has primed the pump of economic growth over the last two decades. The last two years have seen a slowdown in the same – driven by how COVID has impacted both demand and supply side of consumption. I hope that Budget ’22 kickstarts this flywheel to drive consumption, increase utilization and restart the investment cycle.

While disposable income and job creation are prerequisites to drive the retail consumption base; consumer confidence, access to credit and markets are important enablers the same.

Budget ’22 can help drive that by:

  • Revising income tax thresholds and slabs to increase the disposable incomes of the true middle India
  • Encourage entrepreneurship by continued focus on ease of starting business across sectors
  • Move towards greater formalization in retail, agri-business and hospitality sectors – that have large employment base and potential[/box]

[box type=”shadow” align=”” class=”” width=””]Infrastructure

Suresh Subudhi, Managing Director & Senior Partner and Yashi Tandon, Senior Knowledge Analyst, BCG

“Budget 2021-22 had set the stage for infrastructure with a substantial allocation of INR 5.54 lakh cr (35% increase in capital expenditure YoY) 

“Budget this year is expected to continue the momentum with a further increase in allocation given the multiplier benefits that can boost employment and economic development. More details are expected on the implementation planning of projects under Gati Shakti and mechanisms to accelerate progress under National Infrastructure Pipeline (NIP). As of date, ~50% of projects under NIP have been awarded and 5% have reached completion.

Also, the upcoming budget could be a great opportunity to announce India’s plans on climate adaptation and resilient infrastructure agenda. Many countries including the US for example have drafted plans across 20+ federal agencies to ensure facilities and operations become more resilient to climate change and have made a substantial capital allocation in this direction as part of the Infra bill.” [/box]

[box type=”shadow” align=”” class=”” width=””]Banking

Saurabh Tripathi, Managing Director & Senior Partner, BCG

My expectation from the Union Budget is a bolder move forward in transformation of public sector banking industry. The economy is rapidly transforming with deeper penetration and adoption of technology.

Banking sector is set to have a fundamental makeover requiring institutions that have very strong tech, analytics and design capabilities. This transformation is very tough in the operating framework and constraints of public sector. Partial privatization where government takes down the stake to below 51% is one way forward.  It will test the resolve of the government. There is an easy way out to let the public sector banks slide into oblivion with slow decline and eventually sold off in crisis. Much like Air India. That will just deny Indian consumers and businesses better banking and Indian taxpayers would be footing the heavy bill for the inefficiencies it sustains over long periods.[/box]

[box type=”shadow” align=”” class=”” width=””]Cryptocurrency

Saurabh Tripathi, Managing Director & Senior Partner , BCG

Web 3.0 is at a nascent stage as internet was in 2000.  The giants like Google, Apple, Amazon, and Facebook were being conceptualized and launched. And in the following 20 years, massive value was created for their customers and owners.  The next generation on Web 3.0, the next version of internet are on the table now. Crypto assets are a fuel for this internet. Not just currencies but a range of other digital assets like non fungible tokens, wrapped asset token, and more that permit fractional ownership of a wide range of assets hitherto unavailable to mass market and a way for entrepreneurs, artists, and even students to raise money for their endeavors or education like was never possible before. We need to have a progressive regulatory framework that can create enabling environment where innovation can thrive in a legal way – and India’s entrepreneurs can create platforms that, not just India but the whole world we use.  It is a moment in history that we cannot miss.  We need to have a regulation out soon.[/box]

[box type=”shadow” align=”” class=”” width=””]Agriculture

Sushma Vasudevan, Managing Director and Partner, BCG

Budget 2021-22 had set the stage for a more inclusive development in Agriculture with a 5.6% higher budget allocation at Rs 1,31,553 Cr with several measures to enhance rural and agricultural infrastructural development. Be it the improved availability of credit for farmers increased allocation to the rural and agricultural infrastructure development fund, the proposals put forward held promise of enhanced opportunities and better profits for farmers. Budget this year is expected to continue its push on Agriculture credit and infrastructure development. Additionally, focus would be on furthering the ag-tech revolution in the country with more details expected on the National Digital Agriculture Mission. The government should also continue to encourage value addition and exports to increase price realizations and quicken farm to fork channels. Support would also be much-needed for investments in productivity enhancement, like precision agriculture and automation — whether individually or at community level as well as through diversification in both crop portfolio and more modern agricultural practices. Also, the upcoming budget would be a great opportunity to announce India’s plans on climate adaptation and sustainable agriculture agenda.[/box]

[box type=”shadow” align=”” class=”” width=””]Ed-tech

Sharad Verma, Managing Director and Senior Partner, BCG

The start-up ecosystem attracted over $40Bn of capital in 2021. Significant investments have been made in the creation of platforms and ecosystem partnerships and in the current year B2B marketplaces and EdTech witnessed significant capital inflows. There lies tremendous opportunity in connecting these platforms to the social sector to widen access of services to the Next Billion and simulate the scale advantage for MSMEs through these tech platforms. In the education sector the value lies in deploying the content and technologies for mass education and direct research in course delivery methods which lead to learning impact through the use of these technologies in a hybrid environment. For small businesses, societies and co-operatives, missions like NRLM (focused on Self Help Groups) can connect these groups to these marketplaces and use the technology platform to provide access to design inputs and marketing scale. In the coming years investments need to be encouraged in deep tech innovation in India on sectors such as climate and material science to fuel energy transformation.[/box]

[box type=”shadow” align=”” class=”” width=””]Energy

Venkatesh Raman Prasad, Partner, J Sagar Associates (JSA)

While 2021 saw the launch of National Hydrogen Mission, it is likely that the Budget may provide for targeted fiscal incentives for R&D in green hydrogen segment, creation of domestic supply chain for hydrogen and reduce customs duties on electrolysers to boost green hydrogen production.” [/box]

[box type=”shadow” align=”” class=”” width=””]Auto

Mercedes-Benz India

Budget should aim long-term holistic growth for auto industry

The Union Budget 2022 should aim at long-term holistic growth for the auto industry prioritising job creation, infrastructure development, introduction of latest technologies and increased decarbonisation efforts.[/box]

 

– ET Edge Insights

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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