After contracting in 2020, the Indian economy reached new heights, and the financial services industry was crucial in bolstering and stabilising the markets. With the notable changes that have taken place over the years, the sector has played a variety of functions, from regulating market capitalisation to fostering efficiency across sectors. The upcoming Union Budget 2023 can be very important in boosting economic growth to achieve the stated targets and creating the right regulatory environment.
Here is a wish list for the sector:
Increase ease of doing business
India has jumped in its rank of ease of doing business after a series of reforms and this momentum can continue with the Budget making further provisions, especially in terms of digital infrastructure. Information technology serves as the primary architect for current and future technical implementations.
The financial institutions are now using hybrid cloud architecture in place of the conventional mainframe method, which enables them to decommission some data centres while continuing to run some workloads with unique security requirements on-premises.
Modernisation of data centres and the refurbishment of existing centres with technology systems can help track abuse (phishing, malware, intrusion attempts, etc.) while being user-friendly. This involves substantial cost; incentives in form of grants or tax deductions to undertake such projects could go a long way in empowering the institutions to meet the most recent sustainability and security standards.
Revise TDS u/s 194J(c)
Another factor that potentially leads to restricted ease of doing business is TDS u/s 194J (c). This sub-section states that TDS is due even by creating suspense entries or provisions in the books of accounts. This puts the cart before the horse because even though the expenses might not have been incurred or even bargained for, just the act of provisioning makes it subject to withholding tax. In doing so, there also exists a risk of inaccurate disclosures which hampers investor decision-making. The government could simply exempt this sub-clause and effect a stringent audit procedure.
Make India a hub for raising capital
Making India a hub for raising capital should be another priority for this year’s Budget. India as a whole is now far more respected than it ever was as it is the only nation in the SAARC and nearby regions that is witnessing sustained economic growth. The country has a robust capital market infrastructure, technology and seasoned regulators. Many nations in the SAARC are seeking India’s aid to relieve their financial strain and revitalise the allied capital markets. One way of doing this is to issue and list their securities here in GIFT IFSC Gujarat, rather than go all the way to NASDAQ or NYSE or EURO markets. This can also be done by issuing Indian Depository Receipts or IDR.
On a different note, AIFs using the broadening new tax provisions and infrastructure created in the GIFT IFSC could be India’s gateway for inviting Indians who wish to diversify their exposure in the international markets.
Increasing financial literacy
The Union Budget should be a judicious mix of education, enhancements, tweaks, budgetary cost allocations and saving mechanisms that can result in alpha benefits for a marginal outlay. It should encourage more domestic savings and put an emphasis on financial literacy. Without including the savings from gold, it has saved more than $450 billion dollars per annum. This is around five times more than what is brought in terms of gross foreign direct investments. Thus, we need to focus on promoting and cherishing local savings, too.
E-trading platforms for farm produce
The income of farmers can be doubled and food subsidies can be gradually reduced with the help of agricultural electronic trading. One technique used earlier was to set a minimum support price. But this led to a fiscal constraint and cost the government approximately Rs 200,000 crores annually by way of agricultural subsidies. However, agricultural items can be purchased or sold electronically, just like stock market transactions, thanks to rapid innovations in technology and logistics.
Easing of funding ecosystem in GIFT IFSC
The IFSC regulations provide for multiple types of strategies of funds that can be managed by a fund manager entity (FME) licensed as a Non-Retail Regulated Manager. This means that they can manage Category I, II or III funds. However, there exists a grey area as to whether such an FME can form a trust that can house all three types of strategies or asset classes as schemes under the same trust. The government should provide clarity as it will greatly improve the attraction of the fund ecosystem in GIFT IFSC since it will improve the economics of the fund structure.
Finally, except for closing the gap between capital gains on listed versus unlisted shares, it can be assumed that there won’t be any significant rate-related considerations. While India has emerged as one of the promising markets in the world economy, it is not immune to macroeconomic headwinds and the possibility of an economic slowdown although remote in India. This is the time to therefore improve upon what we have without a pause.