India Economic Update
Milind S. Kothari
Managing Partner
BDO India

The Hon'ble Finance Minister (FM) of India, Ms. Nirmala Sitharaman unveiled her third annual budget on 1 February 2022. Both her earlier budgets have been defensive - two years ago, India's economy had hit a low ebb, and last year’s budget was released in the midst of the pandemic and thus affected.  Pleasantly, this time most of the economic indicators seemed favourable and that helped her conceive one of the finest budgets that will hopefully set the tone in redefining India's economic destiny.

Balancing a financial budget for a large economy such as India, the agenda always is meaningfully disparate. The coverage includes deregulation, process simplification, privatisation, foreign exchange reserves accumulation, inflation-targeting, housing-for all, green technology, the Insolvency and Bankruptcy Code, health insurance for the poor, financial inclusion, infrastructure spending, direct benefit transfers…and the list goes on.

The overall economic activity has surpassed pre-pandemic levels. the Indian economy is expected to witness real GDP expansion of 9.2% in the current fiscal year (April-March).  This will be propelled by widespread vaccine coverage, gains from supply-side reforms and easing of regulations, robust export growth, and availability of fiscal space to ramp up capital spending. The projected GDP growth during 2022-23 assumes that there will be no further debilitating pandemic related economic disruption, the monsoon will be normal, withdrawal of global liquidity by major central banks will be largely orderly, oil prices will be in the range of USD70-USD75/barrel, and global supply chain disruptions will steadily ease over the year.

In the last week of January, the world markets were spooked by the looming threat of high inflation. India's Consumer Price Index inflation stood at 5.6% YoY in December 2021, within the targeted tolerance band. However, India does need to be wary of imported inflation, especially from elevated global energy prices.

Amid frequent disruptions caused by the global pandemic, India's balance of payments remained in surplus throughout the last two years, with the Reserve Bank of India (RBI) accumulating foreign exchange reserves at USD 634bn as of 31 December 2021. The size of the reserves is equivalent to 13.2 months of merchandise imports and is higher than the country's external debt. With this, India has the fourth largest foreign exchange reserves, globally, after China, Japan, and Switzerland. In the budget speech, a pleasant surprise was a strong rebound in government revenues in fiscal 2021-22 indicating that the government will comfortably meet its targets for the year while maintaining support to the economy and ramping up capital expenditure. The revenue receipts were up over 67.2% YoY in April-November 2021, and unsurprisingly, the fiscal deficit for April-November 2021 has been contained at 46.2% of budget estimates.

The FM laid out four priorities in the budget, i.e., ‘PM Gati Shakti’, ‘Inclusive Development’, ‘Productivity Enhancement & Investment, Sunrise Opportunities, Energy Transition, and Climate Action’ and ‘Financing of Investments’. In preparedness for the electric vehicle revolution on the anvil, the FM promised to release a battery swapping policy to define interoperability standards. The plan is to encourage the private sector to develop sustainable and innovative business models for 'Battery or Energy as a Service'.

However, the most stellar budgetary announcement was the promised outlay for capital expenditure. The capital expenditure is being stepped up sharply by 35.4% from USD 74bn in the current year to USD 100bn during fiscal 2022-23. Further, this investment taken together with the provision made for the creation of capital assets through grants-in-aid to States, the 'Effective Capital Expenditure' of the Central Government is estimated at USD 142bn in 2022-23, which will be about 4.1% of GDP. While the government has taken on the mantle to do the heavy lifting when it comes to CAPEX, most believe that the private sector will eventually trump the government, given the strength in the economy.

On the divestment front, India's flagship airline, Air India has returned to the Tatas, ending decades of public ownership. The airline has been a totemic example of mismanagement in the public sector and the government retaining a hold on sectors in which it has no rational reason to participate. Like many other public sector enterprises, the airline provided dubious utility to the government, soaked up vast amounts of taxpayer cash and distorted the civil aviation industry. However, in the past, all attempts to privatise the airline had failed for decades. Much else in the public sector, including elements of the state-controlled banking sector, remain hopelessly inefficient and underperforming, with privatisation seeming the only way out. It is therefore understandable why the FM has only factored in a paltry USD 8.67bn in the budget, given the snail’s pace of privatisation efforts.

As India readies for summer of 2022, the mood in the government and business is buoyant. It is hoped that collectively, India will be able to leapfrog into the digital economy bridging the urban-rural gap and be able to cross many milestones to bring livelihood and prosperity for its millions.

M & A Tracker
Rajesh Thakkar
Partner and Leader

M&A Tax and Regulatory

Deal Advisory Services

M&A in India

Between 29 November 2021 to 30 January 2022, around 157 M&A deals were announced of which 103 M&A deals were completed. The aggregate value of deals announced is USD 7010.70mn; dominated by 107 domestic deals (USD 4052.81mn) followed by 50 cross border deals (USD 2957.89mn)

In terms of sectors (considering only closed deals), the Information Technology sector saw the maximum deal value, with deals worth USD 1620.01mn followed by the Health Care sector with deals worth USD 165.40mn and the Consumer Discretionary sector with deals worth USD 143.52mn

Significant Deals closed between 29 November 2021 to 30 January 2022

Target Company
Mir Protocol
Acquiring Company
Polygon Technology
Deal Value (in mn USD)
Information Technology
  • Polygon Technology acquired Mir protocol for a total consideration of USD 400mn (INR 30.12bn)
  • The transaction is part of a three-year vesting period during which the Mir protocol team will be able to withdraw funds gradually
  • As part of the transaction, Mir Protocol will be integrated as Polygon Zero. It will join the existing Polygon Solutions such as Polygon PoS etc.
  • Post transaction, Mir Protocol will operate as a wholly owned subsidiary of Polygon Technology
Target Company
Com Tec Co IT Ltd.
Acquiring Company
Tech Mahindra Ltd.
Deal Value (in mn USD)
Information Technology
  • Tech Mahindra Limited (Tech Mahindra) acquired a 100% stake in Com Tec Co IT Ltd. for USD 353.84mn (INR 26.18bn)
  • The acquisition enables Tech Mahindra in building differentiated capabilities in end-to-end digital engineering, to establish a strong Eastern European presence with over 720 highly-skilled IT Professionals in contemporary technologies and processes with deep digital transformation expertise in the insurance sector
  • Post transaction, Com Tec Co IT Ltd. will operate as a subsidiary of Tech Mahindra
Target Company
Dunzo Digital Private Limited
Acquiring Company
3L Capital Management, LLC, Alteria Capital India Fund I, Lightbox Ventures III, Lightrock, Reliance Retail Ventures Ltd.
Deal Value (in mn USD)
Information Technology
  • Dunzo Digital Private Limited (Dunzo) raised USD 240mn (INR 17.87bn) from Reliance Retail Ventures Ltd. (Reliance Retail), Lightbox Ventures III, Lightrock, 3L Capital Management, LLC and Alteria Capital India Fund I pursuant to which Reliance Retail, the largest investor, acquired 25.8% stake in Dunzo
  • As part of the transaction, Dunzo and Reliance Retail would also establish business partnerships, Dunzo would enable hyperlocal logistics for Reliance Retail's retail outlets, enhancing the omni-channel capabilities of the company and Dunzo would also help JioMart's merchant network with last-mile deliveries
Target Company
Synergia Life Sciences Private Limited
Acquiring Company
Novozymes A/S
Deal Value (in mn USD)
Health Care
  • Novozymes A/S acquired 60% stake in Synergia Life Sciences Private Limited (Synergia) for USD 152mn (INR 11.37bn) on a cash and debt-free basis
  • As a part of the transaction, India Life Sciences Fund II LLC sold its stake for USD 75mn in Synergia
  • The remaining 40% will be acquired no later than in 2025 at a similar pre-defined relative valuation level, including a maximum pay-out cap
  • The acquisition offers a scientifically proven portfolio that strengthens Novozymes’ human health business and accelerates its functional food offerings
  • The founders of Synergia will continue to be actively involved in the business
  • Post transaction, Synergia would operate as a subsidiary of Novozymes A/S

Significant deals announced between 29 November 2021 to 30 January 2022 but not closed

Target Company
Zee Entertainment Enterprises Limited
Acquiring Company
Sony Pictures Networks India Private Limited
Deal Value (in mn USD)
Consumer Discretionary
  • Zee Entertainment Enterprises Limited (Zee) entered into definitive agreements to merge with and into Sony Pictures Networks India Private Limited (Sony) for USD 2243.56mn (INR 170.35bn)
  • As a part of the transaction, Sony and Zee will combine their linear networks, digital assets, production operations and program libraries.
  • Under the terms of the definitive agreements:
    • Sony will have a cash balance of USD 1.5bn at closing, including through infusion by the current shareholders of Sony and the promoters of Zee, to enable the combined company to drive sharper content creation across platforms, strengthen its footprint in the rapidly evolving digital ecosystem
    • The promoters of Zee have agreed to limit the equity that they may own in the combined company to 20% of its outstanding shares. This construct does not provide the promoters of Zee any pre-emptive or other rights to acquire equity of the combined company from the Sony Group, the combined company, or any other party.
  • Post transaction, Sony will hold a 50.86% stake, the promoters of Zee will hold a 3.99% stake, and the other Zee shareholders will hold a 45.15% stake of the combined company
Target Company
Bharti Airtel Limited
Acquiring Company
Google LLC
Deal Value (in mn USD)
Telecommunication Services
  • Google LLC entered into an agreement to invest USD 701.56mn (INR 52.24bn) in Bharti Airtel Limited (Airtel) for 1.28% stake
  • The company allotted 71,176,839 equity shares at a price of INR 734 per share to Google LLC
  • The partnership will focus on enabling affordable access to smartphones across price ranges and will continue to explore building on their existing partnerships to potentially co-create India-specific network domain use cases for 5G and other standards
  • As part of the transaction, Google LLC intends to invest up to USD 1bn as part of its Google for India Digitization Fund, which includes USD 700mn equity investment and up to USD 300mn that will go towards implementing commercial agreements, which will include investments in scaling Airtel’s offerings that cover a range of devices to consumers via innovative affordability programs as well as other offerings aimed at accelerating access and digital inclusion across India’s digital ecosystem
Feature Story
Niranjan Govindekar
Partner/ Tax & Regulatory Services

Budget 2022 – Path to progress

While the Indian economy has been no exception to the pandemic, the sharp rebound and recovery is reflective of the country’s resilience. In the backdrop of economic revival, the Finance Minister presented a pro-growth Budget that chartered a blueprint to steer the economy over the next 25 years.

While the Budget kept the tax rates for corporates and individuals unchanged, it outlined key tax proposals to simplify the tax system, promote voluntary compliance by taxpayers, and reduce litigation. 

The Budget proposed to grant multiple tax exemptions on income earned by a non-resident from its investments in International Financial Services Centre (IFSC). Accordingly, income on transfer of offshore derivative instruments or over-the-counter derivatives, portfolio income from a portfolio managed by an eligible IFSC Offshore Banking Unit, royalty and interest income arising from the lease of ships are exempted from tax. 

In a pro-active effort, the Budget proposed to cap surcharge applicable to Long Term Capital Gains (LTCG) at 15% of tax on LTCG earned on all capital assets. As a relief to COVID affected individuals, the Budget provides for a tax exemption in respect of any amount received by individuals towards medical expenditure, as also compensation received by a family member of a deceased person. 

To ease concerns of businesses in view of the pandemic, the incorporation threshold for eligible start-ups, and the commercial production commencement threshold of domestic manufacturing companies, has been extended to 31 March 2023 and 31 March 2024 respectively. 

The Budget also introduced the concept of filing updated returns within 24 months from the end of the assessment year providing a one-time window to taxpayers to correct any discrepancy or omissions in their tax returns and declare such additional income. An additional tax of 25% (for returns filed within 12 months from the end of the assessment year) or 50% (for returns filed beyond 12 months but before 24 months) on the tax and interest due on the additional income will be payable. 

Recognising the growing popularity of Virtual Digital Assets (VDA) and in an attempt to bring this emerging market under the tax net, the Government has proposed to tax income arising on transfer of VDA at a flat rate of 30% (plus applicable surcharge and cess) with no deduction of expenses (except the cost of acquisition). A gift of VDA is also proposed to be taxed in the hands of the recipient. Further, any loss arising from such transfer will not be permitted to be set off against any other income in the same year or subsequent years. To keep track, withholding tax @ 1% on transfer and exchange of VDA is also introduced.

The current Special Economic Zones Act and Rules which imposes restrictions on location/area, tax exemptions, sales to the domestic market, etc. seem to have caused loss of interest for fresh investments and employment generation. The Finance Minister announced that this law is sought to be replaced with a new legislation, factoring present-day needs.

Further Customs duty exemptions on certain capital goods, project imports and more than 40 other notifications are proposed to be gradually phased out. This is expected to encourage domestic investment in manufacturing and local value additions and give a fillip to its policy reforms on its Atmanirbhar (self-reliance) framework.

In the backdrop of buoyant GST revenues, the Budget proposals signal continuation of the policy that seeks to strike a balance between facilitation and enforcement.

Amongst other policy announcements, some significant ones were -

  • Reserve Bank of India to introduce Digital Rupee,
  • Next phase of Ease of Doing Business EODB 2.0 and Ease of Living, will be launched
  • Insolvency and Bankruptcy Code will be amended to enhance the efficacy of the resolution process and facilitate cross border insolvency resolution
  • Accelerated Corporate Exit - to speed up the voluntary winding-up of in less than 6 months

With a significant push to capital expenditure to propel growth, India has delivered a pro-growth budget to boost the supply side and attract private investment. A transformative approach for economic growth and intention to steer India toward sustainable development would accelerate key sectors such as health, education, infrastructure, transportation, defence, cleantech and EV, and will enhance ‘ease of doing business’ in the country.  

Guest Column
Dr Ajay Sahai
Director General & CEO
Federation of Indian Export Organisations (FIEO)

Budget 2022 – A propeller for economic growth

Budget 2022-23 drew a blueprint to steer the Indian economy over the next 25 years. Though tabled at a time when many state elections are on the cards, the Budget did not have even an iota of populism but retained its avatar as a ‘Booster Budget’.

Capital expenditures increasing by 35% to USD 100bn (INR 7.5 lakh Cr) can generate economic production worth USD 245bn, while for USD 0.1mn (INR 1Cr) Capex by the Government, the economic production increases by USD 0.3mn (INR 2.45 Cr). The hope is that such huge investment from the Government will also encourage the private sector to come forward and become a major partner in India’s economic development.

Despite being the third-largest start-up base globally, the Budget provisioned to further encourage start-ups, by extending the existing tax exemption to all start-ups for another year till 31 March 2023. Therefore, now start-ups incorporated till 31 March 2023 will be eligible for the Income tax exemption for 3 consecutive years, out of 10 years since incorporation. Similarly, to encourage investments by domestic companies, the 15% concessional tax facility has been extended to companies commencing manufacturing or production by 31 March 2024. The seven engines of PM GATI Shakti: Road, Railways, Seaport, Airport, Mass rapid system, Waterways and Logistics are expected to transform the country’s infrastructure as it moves towards a USD 5tn economy by FY 26. Establishing 100 cargo terminals and 4 mega logistic parks in FY 23 will help reduce the cost and time of logistics.

The recognition of the need for skilling, re-skilling and upskilling through the online route is set to aid quality skill training at a large scale which will further enhance the quality of manufacturing and exports.

The Budget addresses the concerns of both domestic and international trade. Looking into the liquidity challenges, the Emergency Credit Linked Guarantee (ECLGS) has been extended for one more year with an additional provision of USD 6.67bn (INR 50000 Cr) for hospitality and related sectors. The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) now provides for an additional credit of USD 26.67bn INR (2 lakh Cr).  The provision has been made for the Interest Equalisation Scheme for exporters and we await the announcement of the policy by the Government. The reduction of duty on cut & polished diamonds, gemstones, few chemicals, exemption from duty on steel scrap will provide competitiveness to exports of gems & jewellery, chemicals, and engineering. It is encouraging that the duty-free facility for the import of trimmings and embellishments has been restored to help the handicraft, apparel, textile, leather, and sports good sectors.

The SEZ Act will be repealed and replaced with the new Act to convert such zones into economic conclaves, creating employment besides exports. Much needed flexibility in operations will be available under the new legislation, digital risk-based administration of SEZ by Customs and filing of all information on ICEGATE instead of NSDL will certainly simplify the process.

The budget is not merely a statement of revenues and expenditures, but reflects the Government’s vision, not only for the next few years but until India is 100 in 2047. The emphasis on growing urbanisation to facilitate mobility over the next 25 years and therefore building infrastructure is a well-conceived idea.

The move towards a digital currency will not only keep India aligned with global developments but at the same time will address the challenges imposed by crypto and virtual currencies besides reducing the cost of currency printing.  The Government’s vision to unlock potential in sunrise sectors such as AI, geospatial systems and drones, semiconductors, space, genomics and pharma, green energy and clean mobility systems augur well for sustainable development on a massive scale.

Expert Reel

Watch India’s Finance Minister Ms. Nirmala Sitharaman, in her first private media interaction post the announcement of Union Budget 2022. The Finance Minister in this exclusive interview talks to the Editor-in Chief of Network 18 - One of the largest media conglomerates in India having successful strategic alliances with global media players such as Viacom, CNBC, CNN, A+E Networks and Forbes.



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