India Economic Update
Milind S. Kothari
Managing Partner
BDO India

The Finance Minister of India, Ms. Nirmala Sitharaman, unveiled her fifth successive budget, on the 1st of February. While the emphasis was on seven areas that will be in focus in the ensuing year, importantly, the Budget meets the key twin targets of higher capex and lower fiscal deficit. The introductory highlight in the Budget speech was India’s story of being a large yet stable economy, that seems to be defying the global headwinds of recession as currently witnessed in many countries.

The introductory highlight in the Budget speech was India’s story of being a large yet stable economy, that seems to be defying the global headwinds of recession as currently witnessed in many countries.

India now claims the position of being the fifth largest economy in the world and a bright spot in an otherwise gloomy global economic environment, reversing the sharply decelerating trend evidenced pre-pandemic. The GDP growth in this fiscal (April-March) is expected to dip down to 7%. The fiscal deficit seems well within control at 6.4% of GDP and is projected at 5.9% in the next fiscal year. This is remarkable for a large economy in a global scenario that has witnessed high turbulence on account of the ongoing Russia-Ukraine crisis and the sharp increase in oil prices.

While the inflation is moderating at 5% plus, it is still considerably above the Reserve Bank of India’s (RBI, India’s central bank) medium-term target of 4%. Against this backdrop, the central bank is unlikely to either cut rates soon or start pumping money into the economy. The fiscal authorities could get far less support from the monetary policy than in ordinary times. India’s economy has a thorn in the foot - the debt burden (of the Centre and the states) which at 84% of the GDP, is way too high for comfort. Needless to add, the escalation in the debt ratio was exacerbated due to the unavoidable fiscal burden of the pandemic. High debt brings the challenges of servicing the debt, that results in further borrowing or brings constraint on expenditure or the ability to spend, which is critical for a growing economy.

Meanwhile, the tax bounce witnessed in both direct and indirect taxes is a huge blessing. The January 2023 collection of GST (tax on goods and services) reported the second-highest collection at USD 19.26bn up by ~24% from a year ago. Before the pandemic, the growth in GST collections lagged behind the GDP growth. However, this trend was reversed in fiscal 2021-22 and is likely to hold during the current fiscal as well. To continue the propitious progression, the direct tax collections show an upward growth nearing 20% over the last year.

One of the high-profile initiatives led by the Prime Minister (PM), Mr Narendra Modi is the ‘Make in India’ programme, which was launched in his first year in office as PM in 2014. The pandemic gave birth to ‘China plus one’ as an invitation to global companies to set up a manufacturing base in India. This initiative is being extended to the European Union (EU) plus one. The Government has approached the Indian diaspora to make a strong representation to multinational companies to set up their factories apart from China and the EU. The standout case studies are the manufacturing of high-tech products such as wings of F-16 fighter jets, components for almost any car bought abroad, or chips that go into the manufacturing of the Airbus. The refined pitch is not just low-cost production, but high-tech manufacturing enabled by India becoming a knowledge hub for the world.

Moving on to the digital front; the great digitisation push led by the present Government has ushered in an exponential increase in the demand for data centres. To complement the demand, the data centres have committed billions of dollars to set up the requisite infrastructure. The draft Digital Personal Data Protection Bill, 2022 has moved away from a data localisation stance to one that allows information to be stored in trusted geographies. The Government has proposed allowing personal data to be stored in countries of its choosing but has not spelt out its position on the criteria that will influence its choice. An obvious precondition would be that India should seek reciprocity with countries with whom it is willing to share the personal data of its citizens.  However, it is debatable whether such a policy would bode well for the investments being made in this sector. The concern is that the cross-border data flow even to such geographies will adversely impact investments and thwart the growth of ancillary industries that depend on data centres. In the medium term, this would also affect the investment in a sector that is critical in providing the backbone to the digitalisation drive. The issue of reciprocity would likely be intensely debated within the Government which seems to favour the subject, but is vehemently opposed by data centre companies which are highlighting the concomitant risk of loss of business to overseas companies.

With the economy on the upswing, big dreams come in easily. There is speculation that the size of the Indian economy which will be USD 3tn by the end of this fiscal will touch USD 7tn in the next 7 years. These are heady numbers to chase, but Indians would need to work harder to achieve them, keeping their priorities focused on growth to realise these numbers.

M & A Tracker
Rajesh Thakkar
Partner and Leader

M&A Tax and Regulatory

Deal Advisory Services

M&A in India

Between 30 November 2022 to 30 January 2023, around 107 M&A deals were announced of which 57 M&A deals were closed. The aggregate value of deals announced was USD 3,078.79mn, dominated by 75 domestic deals (USD 2,075.15mn) and 32 cross-border deals (USD 1,003.64mn).

In terms of sectors (considering only closed deals), the Consumer Discretionary sector saw deals worth USD 93.29mn followed by the Materials sector with deals worth USD 67.77mn and the Utilities sector with deals worth USD 50.36mn.

Significant deals closed between 30 November 2022 to 30 January 2023

Target Company
Monnet Power Company Limited, 1050 MW Power Plant
Acquiring Company
Jindal Steel and Power Limited
Deal Value (in mn USD)
  • Jindal Steel and Power Limited (Jindal Steel) acquired the 1050 MW Power Plant of Monnet Power Company Limited for USD 49.8mn (INR 4.1bn) through a slump sale.
  • Jindal Steel will use the plant to supply power to its steel plants at Angul and expects to get the same operational in the next one year.
Target Company
Faurecia India Private Limited
Acquiring Company
Tractors and Farm Equipment Limited
Deal Value (in mn USD)
Consumer Discretionary
  • The integration of the Tractors and Farm Equipment Limited (TAFE) plastics business with the interior systems business of Faurecia India Private Limited (Faurecia) offers synergistic gains and enhanced value proportion to all its customers.
  • The Transaction covers Faurecia’s operations at Chakan in Maharashtra, Anantapur in Andhra Pradesh, and Tamil Nadu. The transaction for Chakan and Anantapur is completed, and Tamil Nadu is likely to close soon.
  • Post transaction, Faurecia would operate as a subsidiary of TAFE.
Target Company
Eastman Exports Global Clothing Private Limited
Acquiring Company
Bharat Biotech International Limited
Deal Value (in mn USD)
Consumer Discretionary
  • Bharat Biotech International Limited acquired a stake in Eastman Exports Global Clothing Private Limited for USD 44mn (INR 3.58bn).
  • The transaction, which has already sought approval from the Competition Commission of India, was done through a mix of primary and secondary funding.

Significant deals announced between 30 November 2022 to 30 January 2023 but not closed

Target Company
Jaiprakash Associates Limited, Cement Business
Acquiring Company
Dalmia Cement Bharat Limited
Deal Value (in mn USD)
  • Dalmia Cement Bharat Limited (Dalmia Cement) is acquiring the Cement Business of Jaiprakash Associates Limited (Jaiprakash Associates) for USD 687.05mn (INR 56.66bn)
  • The acquisition will enable Dalmia Bharat to expand its footprint into the central region.
  • The transaction is expected to be completed in 12 months in a phased manner subject to due diligence, receipt of the requisite statutory approvals, and necessary compliances/approvals from lenders/JV partner of Jaiprakash Associates and regulatory authorities.
Target Company
Concert Pharmaceuticals Inc.
Acquiring Company
Sun Pharmaceutical Industries Limited
Deal Value (in mn USD)
Health Care
  • Sun Pharmaceutical Industries Limited (Sun Pharma) entered into an agreement to acquire Concert Pharmaceuticals, Inc. (Concert Pharma) for USD 576mn (INR 47.04bn) through a tender offer at a price of USD 7.98 per equity share.
  • As part of the transaction, the shareholders of Concert Pharma will also receive a non-tradeable contingent value right (CVR) entitling holders to receive up to an additional USD 3.50 per share of common stock in cash, payable upon fulfilment of certain conditions.
  • The transaction is expected to be completed in the first quarter of 2023 subject to the tender of most of the outstanding shares of Concert Pharma’s common stock, as well as the receipt of applicable regulatory approvals and other customary closing conditions.
  • Following the successful closing of the tender offer, Sun Pharma will acquire all remaining shares of Concert that are not tendered into the tender offer and all shares of Concert Pharma’s preferred stock through a second-step merger at the same price of USD 8.00 per share of common stock, plus one non-tradeable CVR.
Feature Story
Gunjan Prabhakaran
Partner & Leader/ Indirect Tax
BDO in India

Budget 2023: Building on the Foundation

Budget 2023 sought to build on the blueprint for growth created in the last budget while focussing on green growth and infrastructure development.

A budget presented in the run-up to an election year is usually expected to have benefits for individuals and industry. However, Budget 2023 approached the priorities of the economy differently while addressing some long-standing needs of the taxpayers. 

The Budget adopted seven priorities - Inclusive Development, Reaching the Last Mile, Infrastructure and Investment, Unleashing the Potential, Green Growth, Youth Power and Financial Sector. The aspiration to be a USD 5tn economy is a powerful driver of the initiatives laid out in the Budget.  The Budget also laid significant emphasis on capital investment outlay of USD 122bn which is thrice the outlay proposed in FY 2019-20.

While the indirect tax proposals aim to promote exports, boost domestic manufacturing, enhance domestic value addition and encourage green energy and mobility, the direct tax proposals announced aim to maintain continuity and stability of taxation, simplify and rationalise various provisions to reduce the compliance burden, encourage entrepreneurial spirit and provide tax relief to citizens.

Notably, the Financial Sector was high on the agenda with changes to the International Financial Services Centres (IFSC). To make the IFSC a global hub for the financial services sector and to bring it to par with IFSCs globally, the Finance Bill proposes to incentivise operations from the IFSC by making certain regulatory and tax amendments.

Start-ups also received attention with the extension of the tax holiday for eligible start-ups extended by a year. The anomaly related to the time limit for carry forward of business loss was also modified. 

With a rise in the number of users of online games, the Finance Bill proposed to provide for a special taxation regime regarding tax on winnings from online games. The proposed rate of withholding tax at 30% could be a dampener but it needs to be seen how the industry will react to these changes. 

Not many legislative changes are proposed on the indirect tax front in the budget. Some of the welcome amendments in the Goods and Services Tax Act include decriminalisation of various offences and an increase in monetary threshold, the crossing of which would trigger the launch of prosecution proceedings. However, in an amendment unfavourable to the taxpayers, the input tax credit of GST suffered on expenses incurred by the companies in meeting Corporate Social Responsibilities under section 135 of the Companies Act, is proposed to be denied. This has been a contentious issue and the advance ruling authorities have been issuing contrary rulings prompting the Government to propose an amendment to the law and put an end to the controversy.

It is also proposed to introduce consent-based sharing of information (viz. particulars contained in the registration application, returns or e-invoice or e-way bills or any other as may be prescribed) as furnished by the taxpayer in the GST common portal, with such other systems as may be notified by the Government.

To rationalise the customs duty rate structure, the number of basic customs duty rates on goods, other than textiles and agriculture, has been reduced from 21 to 13. Further, customs duty rates have been recalibrated to achieve one of the key planks of the Budget i.e., promoting exports and giving impetus to domestic manufacturing and green energy.

The Budget has announced various proposals for the promotion of investments, encouraging domestic value addition, easing compliances and improving tax administration. It is expected that the Budget proposals would serve as a catalyst to help achieve the growth momentum and position India as a leader among global economies.

Guest Column
Yogesh Bansal
Tax Leader – AMEA region
Beiersdorf, Dubai

Budget 2023: A Union Budget for All

India is now the 5th largest economy, the 3rd largest start-up ecosystem globally, with 100+ unicorns and over 80,000 start-ups and an estimated growth rate of 7%. As the world stands on the brink of an economic slowdown, India is emerging strong and ready to embrace the G20 presidency with open arms.

It’s always an impasse before the Hon’ble Finance Minister to balance inclusive development of society at large - especially the feebler sections and keeping the economy stable and in growth mode. This Budget was an honest and prudent effort in striking the balance.  

Despite this being the last full budget of the 17th Lok Sabha, it gripped our fundamentals for a better future with the vision to invest in ‘Economic empowerment of Women, PM VIKAS, Tourism and Green Growth’ which will be key factors in recognising this initiative as ‘ahead of the curve’ in the short to medium term.

The technology-driven vision of ‘Make AI in India and Make AI work for India’ is empowered with three centres of excellence and a policy on National Data Governance to enable access to anonymised data for research. This is set to take India to new heights in today’s technology-driven world, strengthened by the power of its youth. With AI not concentrated in the hands of a few international powerhouses, B2C businesses in India along with AI-based technology firms will create value for the world to align with our G20 theme ‘Vasudhaiva Kutumbakam’.

The changes in custom laws and duty rates bring into line the global framework and PLI schemes. The measures to boost the tourism sector with an attentive method on at least 50 destinations for domestic and foreign tourists in the land of Yoga and spirituality, lends a perfect boost for tourism and the FMCG industry. The initiative to set up Unity malls for the promotion and sale of ‘One district one Product’ will strengthen the social fibre of the ancient handicraft and more such industries.

The special focus on the MSME sector with additional corpus for credit, amendment in Section 43B to make a deduction of expenses on a payment basis and enhancing limits to avail benefits of presumptive taxation is commendable.

However, some rationalise provisions on capital gain tax to eradicate disparity between resident and non-resident investors and setting the roadmap on Pillar-1 and Pillar-2 in local laws for early adaptability by corporates, would remain the unreciprocated expectation of this year.

At a time when the world is looming under the threat of a slowdown and geo-political instability, the Budget presented by the Hon’ble FM is progressive and balanced with a sturdy concentration on the foundation, long-term perspective of India@100, emphasis to further improve ease of doing business,(with decriminalizing 3400 legal provisions and reducing 39000 compliance provisions)and promoting a start-up culture and technology vision for our country’s holistic growth and economic well-being. 

Expert Reel

Watch India’s Finance Minister Ms. Nirmala Sitharaman, in her first private media interaction post the announcement of Union Budget 2023. 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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