STATE OF THE ECONOMY: HOW ARE WE DOING NOW?
STATE OF THE ECONOMY: HOW ARE WE DOING NOW?
So what do you know about the Indian economy? How is it doing?
A simple question can leave a lot of people perplexed. Once in a while, it becomes important for us to know how well our economy is doing and the broad direction in which it is moving. The past two severe waves of the pandemic disrupted a lot of things over the past two years. Perhaps it may be the right time to reset our understanding of the economy with the pandemic behind us and with the Economic Survey 2021-22 in our hands now. It will also help us strengthen our conviction in the India growth story which is at the heart of any investment or wealth creation dreams we have. .
The pandemic resulted in a lot of challenges for the economy. With repeated waves of infection there were lock-downs, fall in economic activities and supply-chain disruptions followed by inflation in recent times. The first wave saw strict national lockdowns extended several times, and then followed by a gradual re-opening. For the second wave, localized state-wide lockdowns were implemented in most states. The economic impact of the COVID-19 has been substantial and broad-based with the GDP contracting sharply in FY2020-21 by around 7.3%.
The government responded to the challenges by giving safety-nets to cushion the impact on vulnerable sections of the society and the business sector. There was a significant increase in capital expenditure on infrastructure during this period while taking measures to improve the supply-side for sustained long-term expansion primarily under the Atmanirbhar Bharat yojana. The government adopted a flexible and multi-layered approach partly based on an Agile framework that uses timely feedback and the monitoring of real-time data. There were multiple trances of stimulus and relief packages for the economy (around 10% of GDP) and businesses, food subsidies, cash transfers to the vulnerable sections, push to MGNREGS, strengthening of medical and healthcare infrastructure, support to States, launching of the world's largest vaccination programme and so on.
After contracting last year, the Indian economy is expected to witness a real GDP expansion of 9.2% (17.6% in nominal terms with inflation) in FY2021-22 reflecting strong recovery and resilience of the economy. This also means that we have recovered past the pre-pandemic levels. It seems that the second wave had a significantly less impact than the first. For the FY2022-23, we are expected to witness a real GDP growth of 8.0-8.5% with broad-based growth in all sectors. As far as the size of the economy is concerned, India's GDP is now around Rs.232.15 lakh crores at current prices which is around USD 3.1 trillion.
There are clearly multiple trends visible in the economy, most of which paint a very good picture of the economy. Here are a few trends worth knowing and taking pride in.
Last year the fiscal deficit & government debt rose in response to meeting pandemic challenges. However, there is a strong rebound in government revenues by nearly 67% y-o-y (April-November 2021). The tax collections have been buoyant for both direct and indirect taxes. The gross monthly GST collections have crossed Rs1 lakh crore consistently since July 2021. This means that now the government will comfortably meet its targets for the year while maintaining the support, and ramping up capital expenditure.
Total consumption is estimated to have grown by 7.0% in 2021-22 with government consumption remaining the biggest contributor. Government consumption is estimated to grow by a strong 7.6% surpassing pre-pandemic levels. Private consumption is also estimated to have improved significantly to recover 97% of pre-pandemic levels.
Investment in the economy, as measured by Gross Fixed Capital Formation (GFCF) is expected to see strong growth of 15% in 2021-22 and achieve full recovery of pre-pandemic level on the back of the government's aggressive push for capex and infrastructure spending. The investment to GDP ratio is now at 29.6%, the highest in seven years.
India's balance of payments remained in surplus throughout the last two years despite the pandemic. This allowed the RBI to keep accumulating foreign exchange reserves which stood at US$634 billion on 31-12-2021, equivalent to 13.2 months of imports and higher than the country's external debt. The gross FDI inflows during April-November 2021 stood at USD 54.10 billion.
Exports of both goods and services have been exceptionally strong so far in 2021-22, but imports also recovered strong. India's total exports and imports are expected to grow by 16.5% & 20.4% respectively in 2021-22, both surpassing pre-pandemic levels. The rise in imports is on the back of domestic demand revival and continuous rise in the price of imported crude and metals.
On the monetary policy front, there was a cut in the policy repo rate by 115 basis points (bps) from February to May 2020, on top of a reduction of 135 bps in the preceding year. Since then, there is a status quo on the policy repo rate keeping it unchanged at 4% and the bank rate and reverse repo rate too remained unchanged at 4.25% and 3.35% respectively. The RBI is continuing with its accommodative stance to revive growth on a durable basis. Notably, there was ample liquidity in the system throughout the pandemic period.
Inflation has reappeared as a global issue in both advanced and emerging economies with a surge in energy prices, non-food commodities, input prices, disruption of global supply chains, and rising freight costs. In India, Consumer Price Index (CPI) inflation moderated to 5.2% in 2021-22 (April-December) from 6.6% in the same period last year. This remains a concern going forward.
The banking system is today well-capitalized and the overhang of Non-Performing Assets (NPAs) seem to have structurally declined. This was one fear we had, but the banking system has handled the pandemic ​​admirably. The bank credit growth has also increased gradually during the current year.
India's capital markets, like many global markets, have done exceptionally well and have allowed record mobilization of risk capital for Indian companies. In April-November 2021, 75 equity IPO issues raised Rs89,066 crore, a record amount for any year in the recent decade. On October 18, 2021, the Sensex and Nifty reached new highs of 61,766 and 18,477, respectively.
After the US and China, India is now the world's third-largest start-up ecosystem. In 2021-22, the number of new recognised start-ups climbed to over 14,000, up from only 733 in 2016-17. In 2021, 44 Indian start-ups attained unicorn status, bringing the total number of unicorns to 83, with the majority of them in the services sector.
As India completed one year of its COVID-19 vaccination drive on 16th January 2022, it crossed the historic milestone of administrating more than 156 crore doses of vaccine with more than 88 crore people (93% of the adult population) have received at least one dose of which around 66 crore people (70% cent of the adult population) stands fully vaccinated.
During the past couple of years we have seen the pace of reforms only strengthen. These reforms include deregulation of numerous sectors, simplification of processes, removal of legacy issues like retrospective tax, privatisation, disinvestments, production-linked incentives and so on.
As can be seen, the economy today stands on a strong economic footing. Almost all critical areas of the economy are back to pre-pandemic levels and are further seeing a healthy growth forward. We should give ourselves, especially the government, a pat on the back on the way the entire crisis was managed and how we have now recovered from it. Today, India is the fastest-growing large economy in the world with ample opportunities to grow and prosper from here. India is today the world's sixth-largest economy overall and the third-largest on PPP basis. At the current pace, it is estimated that we will reach the PM's target of being a $5 trillion economy by FY2026-27 and are well on our way to being the third-largest economy by the year 2031. There continue to be risks and uncertainties, but there is newfound confidence that those shall be overcome, should they arise. These sentiments are well reflected in the markets. As investors, the facts & figures should only further strengthen our conviction in India's growth story for the coming decades. Let us sit tight and ride the wave.
NJ E-wealth
DECODING THE BAHI KHATA - UNION BUDGET 2022
DECODING THE BAHI KHATA - UNION BUDGET 2022
Every year we see the excitement around the union budget, but that quickly fizzles out. Should it be so? In our view, the budget should be taken with a pinch of salt as we have seen a lot of action taken even beyond the budget. Even then, the budget does have its relevance primarily in its nature of being a 'budgeting' exercise - it broadly tells you where the money will come from and where the money will be spent next year.
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The FM stated that India is celebrating Azadi ka Amrit Mahotsav and it has entered into Amrit Kaal, the 25-year-long lead up to India@100. The government aims to attain the vision of the PM stated as
  • Complementing the macroeconomic level growth focus with a microeconomic level all-inclusive welfare focus,
  • Promoting digital economy & fintech, technology-enabled development, energy transition, and climate action, and
  • Relying on a virtuous cycle starting from private investment with public capital investment, helping to crowd-in private investment.
The budget lays down the parallel track of (a) a blueprint for the Amrit Kaal, as above and (2) big public investment for modern infrastructure, readying for India at 100 and this shall be guided by PM GatiShakti and be benefited by the synergy of a multi-modal approach. Moving forward, on this parallel track, the FM outlined the following four priorities:
  • PM GatiShakti
  • Inclusive Development
  • Productivity Enhancement & Investment, Sunrise Opportunities, Energy Transition, and Climate Action
  • Financing of Investments
Elaborating the PM GatiShakti, the FM said that it is a transformative approach driven by seven engines, namely, Roads, Railways, Airports, Ports, Mass Transport, Waterways, and Logistics Infrastructure which will pull forward the economy in unison. These engines are supported by the complementary roles of Energy Transmission, IT Communication, Bulk Water & Sewerage, and Social Infrastructure. Finally, the approach is powered by Clean Energy and Sabka Prayas – the combined efforts of the Central and State Governments and the private sector together. All this is expected to result in huge job and entrepreneurial opportunities for all, especially the youth.
India's economic growth in the current year is estimated to be 9.2%, the highest among all large economies. The overall, sharp rebound and recovery of the economy from the adverse effects of the pandemic is reflective of our country's strong resilience. The growth expected next year is 8.0-8.5% (11.1% nominal growth) with a boost from rising infra spend, robust exports, easing supply-chain constraints, strong capital flows, and an impressive vaccination rate.
(i) Borrowings & Other Liabilities: 35p
(ii) GST: 16p
(iii) Corporation tax: 15p
(iv) Income Tax: 15p
(v) Excise Duties: 7p
(vi) Customs: 5p
(vii) Non-Tax Revenue: 5p
(viii) Others: 2p
(i) Interest payments: 20p
(ii) States share of taxes & duties: 17p
(iii) Central Sector Schemes: 15p
(iv) Finance Commission & Other Transfers: 10p
(v) Centrally Sponsored Scheme: 9p
(vi) Other Expenditure: 9p
(vii) Subsidies: 8p
(viii) Defence: 8p
(ix) Pensions: 4p
The government proposes to spend Rs39.45 lakh crore in 2022-23 (up 4.6%). For 2021-22, the total expenditure is estimated to be 8.2% higher than the budget estimate. Interestingly, the capital expenditure is estimated to be at Rs7.50 lakh crore with a 24.5% increase. This was perhaps cheered the most in the budget.
The receipts (other than borrowings) in 2022-23 are expected to be Rs22.84 lakh crore (up 4.8%). For 2021-22, this is estimated to be 10.2% higher than the budget estimates. This implies that the government has the fiscal capacity to maintain the support and increase capital expenditure when required.
The Fiscal Deficit for FY2021-22 is expected to be 6.95 and at 6.4% of GDP next year. Revenue deficit is targeted at 3.8%, lower from 4.7% this year. This will be financed through Net Debt Receipts which is expected to be at Rs16.61 lakh crores (up 17.15%). The majority of this will be managed through market borrowings (G-Secs & T-Bills) of Rs 11.59 lakh crores (up 32%).
The total indirect tax is pegged at Rs13.30 lakh crore in 2022-23. The corporate taxes are expected to be Rs7.20 lakh crore (up 13%) in 2022-23. The income tax is expected to be Rs7 lakh crore (up 14%). For 2021-22, there was an increase of over 16% and 9.6% over budget estimates for corporate taxes & income tax respectively.
The Productivity Linked Incentive (PLI) across 14 sectors for attaining the goal of AtmaNirbhar Bharat has got an overwhelming response with the potential to generate 60 lakh new jobs and Rs30 lakh crore in additional production over the next five years.
RBI-led digital rupee using blockchain to be launched. About 75 digital banking units in 75 districts. 100% of 1.5 lakh post offices to come under the core banking system.
An open platform for the National Digital Health Ecosystem will be established covering all stakeholders. A National Tele Mental Health Programme will also be launched to provide access to quality mental health counselling and care services.
38 million households to get piped water. Upgrading 200,000 anganwadis to focus on child health. Covering villages with optical fibre under the BharatNet project through a PPP model by 2025.
The PM GatiShakti Master Plan for Express-ways will be formulated in 2022-23. The National Highways network will be expanded by 25,000 km in 2022-23. For Railways, the One-station-one-product concept will be implemented to help local businesses and supply chains. 400 new Vande Bharat trains will be developed and manufactured during the next three years. 100 cargo terminals for multimodal logistics facilities will also be developed in the next three years. Four multi-modal logistics park contracts will be awarded in FY23..
Spectrum auctions will be conducted to facilitate the rollout of 5G mobile services within 2022-23 and to extend the PLI Scheme to build the necessary ecosystem.
A battery swapping policy for electric vehicles will be implemented. Sovereign Green Bonds will be issued in 2022-23 for mobilising resources for green infrastructure.
Digital ecosystem (e-Vidya and digital university) for skilling and livelihood to be launched. A digital ecosystem for skilling and a livelihood portal, DESH-stack, to be launched.
  • The basic income tax exemption limit, income slabs, and tax rates have not changed.
  • The rate of surcharge on all long-term capital assets has been fixed at 15% for all tax slabs.
  • The option of filing updated returns within two years after the end of the assessment year has been made available, subject to the payment of additional taxes and the fulfilment of criteria.
  • The alternative minimum tax for co-operatives will be reduced from 18.5% to 15%. Surcharge reduced from 12% to 7% for co-operatives whose total income is between Rs 1-10 crore.
  • New manufacturing companies have an option to pay tax at 15% (without deductions) if they start manufacturing by March 31, 2023. Certain types of start-ups have an option for a tax holiday for three out of the first ten years if they incorporate by April 1, 2022. Both these deadlines have been extended by one year.
  • The income earned from the transfer of virtual/digital assets (like cryptocurrencies & NFTs) will be taxed at a rate of 30%. Any loss incurred from such transfers cannot be set off against any other income or carried forward to subsequent years.
Firstly, this was not an election budget and it is good to see the FM avoid the temptation and be prudent. The government seems to set a vision of India @ 100 and is trying to lay down a path to identify the right priorities and the actions to be taken. While the big picture looks good, it is impressive to see the government taking actions too towards the PM's stated vision. The emphasis is seen on the seven engines of PM's Gati Shakti as well as on social infrastructure, education, and digitisation. From the digital rupee to a digital university, Budget 2022 saw an unprecedented push for digitisation. Further, direct payments and higher capital expenditure allocations in public schemes are likely to create income and job opportunities, much needed at this time. Overall, with no negatives, Budget 2022 was welcomed by all and cheered by markets. As is the case, efficient and timely execution will be key in all the initiatives unveiled in the Budget.
NJ E-wealth
MAKING THE MOST OF TAX PROVISIONS FOR INSURANCE & HEALTH
MAKING THE MOST OF TAX PROVISIONS FOR INSURANCE & HEALTH
Insurance plays a very critical role in the personal finance space for individuals. Insurance is the best way to mitigate personal financial risks arising from unforeseen events in life. Beyond risk management, insurance is also a popular avenue for tax savings for a majority of taxpayers in India. While tax savings should not be the primary objective behind buying insurance, it is nonetheless still considered an important element for promoting insurance by the government. The government promotes insurance penetration broadly by way of eligible deductions from your taxable income. Thus, the premiums you pay also helps you in lowering your tax liabilities. Apart from insurance premiums, medical and maintenance expenses also have been considered by the government for claiming deductions. This tax season, we will briefly revisit some significant tax provisions under the Income Tax Act, 1961 broadly related to insurance premiums, expenditure on medical treatments, maintenance for the needy people and also the treatment of payouts received by individuals.
As you may be aware, while computing the tax returns, you shall arrive at the total income from all the heads of income called “Gross Total Income” (GTI). To arrive at taxable income, one has to deduct from GTI, the deductions allowable under Chapter VIA (i.e., under section 80C to 80U). In other words, we can say that Taxable Income = Gross Total Income (less) Deductions. While the list of deductions is long, we will restrict ourselves to the tax deductions available on account of payment of insurance premiums and expenditure on medical treatments.
This covers the expenditure on maintenance of a differently-abled, dependent relative - spouse, parent, children or brother/sister. The deduction is available for any expenditure incurred on medical treatment (including nursing), training, rehabilitation or has been invested in an annuity scheme by an insurer for maintenance of such a person with a disability (40% and above/as per the norms). If any amount has been spent, then a flat deduction of Rs 75,000 is available which will be Rs 1,25,000 for individuals with severe disability (80% & above/as per norms), irrespective of the amount of such expenditure. Note that the taxpayer is only required to possess a valid copy of the certificate issued by the medical authority to claim this deduction. /div>
Here, an individual can claim a deduction in respect of actual expenditure incurred by him on medical treatment of specified diseases and ailments for self or dependent spouse, children, parents, brothers and sisters of the individual. The amount of deduction will be the lower of the actual expenditure incurred or Rs 40,000, less any reimbursements already received. This limit is increased to Rs 1,00,000 in the case of a senior citizen. Note that one should obtain a copy of the certificate issued by a recognised specialist in such a case.
Here, an individual who has been certified as a person with a disability by the medical authority, can claim the tax benefit under this section. A flat deduction of Rs 75,000 is allowed for people with disabilities, and Rs 1,25,000 deduction for people with severe disabilities. Note that the taxpayer is only required to possess a valid copy of the certificate issued by the medical authority to claim this deduction. The benefit under 80DD will not be available if such a person has claimed benefit u/s 80U.
Provisions of this section exempts the commuted pension received in the following manner. The commuted value of pension received by the government employees is fully exempted. The commuted value of pension received by any non-government employees would be exempted to the extent of 1/3rd of the pension if gratuity is received, else 1/2 of the amount. The commuted pension received from the pension funds set up by the LIC or any other insurer is again fully exempt
Provisions of this section exempts any amount received under a life insurance policy. Such an amount also includes the sum allocated in the form of death benefits, maturity benefits and accrued bonuses. The exemption is available on all forms of life insurance policy claims and the entire amount is exempted, subject to exclusions. The exclusions include cases where the policy is a keyman policy, the amount must not be an annuity or pension plan payout, the premium amount exceeded 10% or such specified limit of the sum assured and so on.
There is a misconception that every insurance premium paid is eligible for a tax deduction. However, it is not so and generally, insurance premiums paid for policies other than life and health do not get any tax benefit. Thus, premiums paid towards motor insurance, personal accident insurance, home insurance, etc for individuals are principally not eligible for tax deductions. One should also note if a life or health policy combines any other protection, then that component of the premium will be treated accordingly. Thus, for example, if a life insurance policy also combines personal accidents, then the portion of premium towards personal accident will not be covered u/s 80C for the deduction. This however should not discourage insurance buyers as the underlying purpose of buying such policies or in fact any insurance policy must never be tax benefits.
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Fund Manager INTERVIEW
patner Interview
Mr. Shridatta Bhandwaldar
Head Equities - Canara Robeco MF
Mr. Shridatta Bhandwaldar is a Fund Manager at Canara Robeco Asset Management Company, Robeco's joint venture in India. He comes with over 13 years of experience and is actively involved in managing the Canara Rebeco Equity Diversified fund, Canara Rebeco Bluechip Equity Fund, Canara Robeco Infrastructure , and Canara Rebeco Equity Hybrid Fund. Prior to joining Canara Robeco, Shridatta was Head of Research and Senior Equity Analyst with SBI Pension Fund Pvt. Ltd. He has also worked with other reputable names which include Heritage India Advisory Pvt. Ltd.
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"We have taken due care and caution in compilation of this E Newsletter. The information has been obtained from various reliable sources. However it does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions of the results obtained from the use of such information. Investors should seek proper financial advise regarding the appropriateness of investing in any of the schemes stated, discussed or recommended in this newsletter and should realise that the statements regarding future prospects may or may not realise. Mutual fund investments are subject to market risks. Please read the offer document carefully before investing. Past performance is for indicative purpose only and is not necessarily a guide to the future performance."

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