The Union Budget presented by India’s Finance Minister Nirmala Sitharaman on February 1, 2022, has seen massive thrust on technology and digitization. Some of the big announcements in the areas of digital assets, drones, 5G auctions, rural internet, Digital currency based on blockchain, and more, sheds light on the future of “Digital India.”
Here are the takeaways from budget 2022 that is likely to impact the technology sector on the whole.
Digital banking to grow bigger, better
The Finance Minister said in her Budget 2022 speech that 75 digital banking units will be set up across 75 districts. The fintech boost comes in the run up to 75 years of Independence as the FM said that this will be done with an aim to take digital banking to every citizen.
Dr. Navneet Gupta, Founder & CEO at YPay states, “India’s fintech system was a silver lining in the difficult times of lockdown and the pandemic. The nation has been bullish with digital payments, and the current budget has further fueled the same by the announcement. Gradually, all the efforts will strengthen credit access, and payments in the MSME system will certainly reflect in the nation’s economic growth at large.”
Besides, all 150,000 post offices in the country will become part of the core banking system, enabling access to accounts through internet banking, mobile banking and ATMs and also allowing online transfers between post offices and bank accounts. This will help farmers and senior citizens in rural areas, enabling interoperability and financial inclusion.
Digital assets to rest the conundrum around taxation
Ms. Sitharaman announced in her Budget 2022 presentation that any income from the transfer of any virtual digital asset will be taxed at 30%. Tax must be deducted at source on the payment made in relation to transfer of a virtual digital asset at 1 percent of such consideration above a monetary threshold.
Himanshu Parekh, Partner, Tax, KPMG in India, says, “The Finance Minister laid to rest the conundrum around taxation of virtual digital assets by introducing a 30% tax on income from transfer of such assets. The introduction of a new Tax Litigation management scheme is a welcome measure.”
The FM said that a new crypto tax will be introduced under which virtual digital assets will be taxed at 30 per cent in the country. She clarified that no set off will be allowed in case of losses. Also, gifts in virtual digital assets would be taxed in the hands of the recipient
Harish Prasad, Head of Banking, India, FIS, a provider of technology solutions for merchants, banks and capital market firms globally that the launch of India’s CBDC, the Digital Rupee, during 2022-23 is a much awaited and positive move.
“This will trigger a wave of preparatory activity amongst retail payments providers and apps to offer payment mechanisms using the Digital Rupee, along the lines as been seen in China with major Digital payments players and apps offering Digital Yuan payments via their apps. There will likely be a similar model that will be seen in India to support adoption and use of the Digital Rupee, which is paramount for its success.”
Rajosik Banerjee, Partner and Head, Financial Risk Management, KPMG in India believes, “Digital Rupee using blockchain technology will lead to stable, efficient, regulated payments and settlements and lowered transaction cost. This initiative is expected to boost the digital economy and reduce leakages by lowering dependency on cash.”
Jai Prakash, Co-founder & CEO, VRXtream too welcomes the RBI’s decision to introduce the Blockchain powered Digital Currency. This would certainly give an impetus to the participation of institutional players in the blockchain space. Also the announcement of 30% tax on the transfer gains of digital assets is most welcome as it establishes the legitimacy of crypto trading in India. Hoping to see that as the new class of assets finds more traction with the people, cryptocurrencies are recognised and widely adopted as the alternative investment vehicles.”
A boost for tech startups
“This year’s budget has reiterated how the start-up ecosystem has been one of the key drivers of growth for our economy,” says Khadim Batti, CEO & Co-Founder, Whatfix.
The extension of one more year of the current tax incentives and other measures comes as a relief for startups. India’s start-up ecosystem has been witnessing tremendous growth and attracting attention from Venture Capitals and Private Equity players. 2021 saw a record of $42 billion investment from global and domestic players.
The most recent Economic survey states that India currently has over 61,400 startups recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) and the previous financial year 2020-21 saw an increase with addition of at least 14,000 recognised startups. India also witnessed the doubling of the unicorn club to 83 start-ups with 42 new ones.
With the focus on the start-up ecosystem, the budget has also called for an expert committee to examine and suggest appropriate measures in scaling up the investments from the VC/PE community. The start-up ecosystem is also getting capital gains exemption and extension in the eligibility for claiming tax holiday by one more year to 31 March 2023.
“Employees who join start-ups at the various stages of growth can avail more equity and less cash in terms of salary compensation. This will help the Indian start-up base continue to witness steady growth and a more promising talent pool,” says Batti.
Vinay Agrrawal, Founder, Hubbler says, “The government has made its intention of promoting startups very clear in this budget. Enunciation of the push to the digital economy will ensure exponential growth for startups. With strong government support, I am sure the number of new startups in 2022-23 will far exceed the number in the current financial year.”
The plan to enable startups to manufacture drones will boost the new-age OEMs, while the opening up of defence R&D to startups will enable more entrepreneurs to strengthen the defence backbone of the country.”
Introducing, an EV battery-swapping policy
Acknowledging the constraint of space in urban areas for setting up charging stations for electric vehicles, the finance minister proposed to introduce a battery-swapping policy and frame inter-operability standards. The private sector would be encouraged to develop sustainable and innovative business models for battery- or energy-as-a-service.
Sambit Chakraborty, Board of Adviser, Indigrid Technology, “The policies should take a holistic approach to ensure that there is a proper and adequate supply network of swappable packs and swap stations so that it works as if someone is fuelling their vehicle and is able to“swap”in 2-3 minutes. Ground charging does not really work except at home (not for commercial purposes) because of the load it will exert on the grid and the time it takes.”
According to him, “Convenience especially for the last mile operators, gig economy players and home tests/collections is key. Second, there is a proliferation of low quality Chinese players who are “cheap”. There are substantial safety and dependency issues being built into the system.”
He believes, if the policy can build in a structure to raise the safety and “atmanirbhar” aspects and the made in India aspects – that will be a boon for India in the long run. There are many Indian manufacturers of safe batteries and swap stations who would then not have to choose to lower quality and safety standards.
5G rollout may finally happen
5G spectrum auctions is also expected to take place this year, as FM promises 5G service this fiscal. The government will conduct a spectrum auction this year, which will facilitate the roll-out of 5G services by private telecom operators during the financial year.
A scheme for design-led manufacturing will be launched to build a strong ecosystem for 5G as part of PLI scheme, said FM. Spectrum auctions will be conducted in 2022 to facilitate the rollout of 5G mobile services by private telecom companies. As Anand Ramamoorthy, Managing Director, Micron Technology (India) says, “The call out on semiconductors as a sunrise sector and 5G roadmap post the success of PLI schemes launched last year will offer further impetus to the segment.”
Bhavin Turakhia, Co-founder and CEO, Zeta and Founder and CEO, Nova (Flock and Titan) states that the impetus towards the rollout of 5G and broadband services in 2022 will catalyze an entrepreneurial culture and expand India’s presence on the global map of technology innovation.”
Nikhil Mathur, Managing Director – India, GfK too believes, the inclusion of 5G in the PLI scheme will boost the ‘Make in India’ vision and smartphone penetration in rural. We can expect a substantial surge in the contribution of 5G devices in 2022 which is currently 27% in terms of value & 12% in terms of volume as per GfK Market Intelligence 2021. This will also aid the growing demand for premium and smart appliances
Highlighting the cybersecurity risks involved, Debasish Mukherjee; Vice President, Regional Sales APAC at SonicWall warns, “The ultra-fast 5G network will allow devices to connect faster and transfer exponentially more information making it a cybersecurity challenge to protect servers, cell phones, security systems, vehicles, smart homes etc. from being breached.
New prop for Drone industry
The government has promised to create opportunities for the drone industry, as it focuses on promoting Agricultural Drones and NABARD fund to support startups will result in ensuring that the Drone Industry reaches a new milestone.
Bhaskar Majumdar, Managing Partner, Unicorn India Ventures, believes, Drones have now become an Integral part of the implementation of schemes be it in agritech, in defence and other areas. Creation of NABARD Agritech Fund for “Kisan Drones “shows the Government’s recognition of a new view on how to upgrade farming.
Thiru Ramasamy, CEO & Co-founder Skylark Drones too agrees that the introduction of drone shakti is a welcome move and will ensure business momentum and drive faster adoption of UAVs in the country.
“It is encouraging to see the government promoting Digital India and digitization of various sectors through the integration of UAVs through varied applications and drones as a service. Today, both enterprises and the government are realising the economic and social opportunities that India’s widespread and dispersed geospatial assets can provide to the nation. UAVs will offer an ideal compromise between scalability, economic feasibility, immunity to error, and productivity. The faster adoption of UAVs is therefore critical to realise the potential of these geospatial assets,” he says.
Vijay Sivaram , CEO , Quess IT Staffing believes that the signalling of investment in and use of drones will open new arenas and implications which will result in more Startups and employment in the sector.
The development of 100 new cargo terminals in the next 3 years will also add to the growth of Drones enabled for cargo deliveries within the terminals and terminals to delivery locations.
Reaping benefit from digital education
With children having lost almost two years of formal education due to the pandemic, the ‘One Class-One TV Channel’ programme of PM eVIDYA will be expanded from 12 to 200 TV channels. This will enable all states to provide supplementary education in regional languages for classes 1 to 12.
E-passports and futuristic technology
E-passports using embedded chips and futuristic technology will start rolling out in FY23 to make overseas travel more convenient. As Dr Satya Gupta, President VLSI Society of India, Advisor, IESA, “The e-passports with “Embedded Chip” will provide the wind under the sails of the recently announced ambitious Semiconductor policy.
Also, a completely paperless, end-to-end online e-bill system will be started for use by all central ministries for their procurement as a further step to enhance transparency and to reduce delays in payments. As Kunal Nagarkatti, CEO, Clover Infotech believes that the proposed end-to-end online e-Bill system will enable increased productivity for industries that go completely paperless. This will prove to be extremely fruitful for digitization.
Animation and gaming to offer immense potential
Animation, visual effects, gaming and comics (AVGC) offer immense potential to employ youth. An AVGC promotion taskforce will be set up to recommend ways to realise this and build domestic capacity to serve the domestic markets and global demand.
Rahul Tewari, Chief Financial Officer, Games24x7 says, “The gaming industry welcomes the decision to set up a task force for Animation, Visual Effect, Gaming and Comics. AVGC taskforce can provide the long-term policy impetus and bring together the various stakeholders to turbocharge the vibrant ecosystem in gaming and animation. India has a deep and very high quality talent pool of developers and creative artists who will transform India into a global player in the interactive entertainment space in the coming years. We hope this paves way for regularity clarity for gaming, a sector that has contributed immensely to India’s start-up success in the last few years.”
A strong focus on deep tech
The Union Budget has put a huge thrust on deep tech ranging across Artificial Intelligence (AI), Internet of Things (IOT), Blockchain and other Digital tech across core sectors of the economy.
PN Sudarshan, Partner and TMT Industry Leader, Deloitte India states that deep tech is an idea whose time has come. “All our focus so far has been on the application layer which provided solutions to problems and business opportunities. A focus on deep tech will provide that strategic depth. Wish the government expands and extends this,” he says.
From defence, geo-spatial systems, drones, space economy, pharmaceuticals and clean mobility have immense potential to achieve sustainable development and offer employment to millions. The government will enable development in these sectors through the startup community. As Ajay Ramasubramaniam, Co-Founder & CEO, Startup Reseau says, “India is setting up a massive roadmap to become a technology powerhouse in infrastructure, financial services, agriculture and national defense. Setting up a roadmap for adoption of CBDC and making digital and fintech as the priority of the government stands out in this Budget announcement.”
Bhaskar Majumdar, Managing Partner, Unicorn India Ventures too believes this budget shows tech enablement as an integral part of governance will be a boost for all new age tech companies and would further enhance the environment of new age digital and tech companies.
Several others in the industry hail the budget as ‘progressive’ and ‘futuristic’ from a technological viewpoint. Overall, the digitization theme is being carried forward and will be the backbone for new investments in education, healthcare, agriculture, banking, payments, and also to streamline govt. procurement & payments. Announcement for deep tech / sunrise sectors in terms of policy support, light touch regulations, funding support etc seems seminal. 5G spectrum auction and the emphasis on optic fibre augurs well for B2B, B2C and G2C initiatives, believes Sudarshan.
“Overall, there is a lot of substance but the outcome, as always, dependent on commitment and implementation,” he sums up.