Budget 2022: In India, Digital Rupee Will be Only Digital  Currency  

The DEA Secretary Ajay Seth discusses how the budget will help the economy flourish. He further clarifies that the digital rupee will be the country’s first and only digital currency, and that cryptocurrency is merely an asset class on which the government has yet to decide, with laws drafted only after worldwide stakeholder consultations.

What do you think the budget’s overall impact on growth will be this year?

This budget is a continuation of the previous year’s vision, and the majority of them are on track, with a few exceptions where a lot of groundwork has been done, such as the implementation of the new PSE policy. Beyond that, in terms of new ideas, this budget lays the groundwork for the future, both short and long term. PM Gati Shakti’s Gati Shakti plan is a very formative concept. Now we’ll put it into action. A new paradigm in planning, funding, and other areas has been implemented not just by the federal government, but also by state governments and the business sector. Previously, each facility was examined separately, rather than as a whole, with the emphasis on logistics efficiency. Take a look at how much more productive it is. So, there are all of those ideas and concrete announcements, as well as initiatives to foster growth and attract private investment.

Even this year, the government has increased capex by a record amount. Are we still waiting for private investment to flood in, and do we see any systemic issues that might necessitate government intervention?

We did feel compelled to increase government capex. This year, we have a growth rate of 9.2%, but we are also aware that, despite a strong recovery, that rate of growth will not be sustainable on its own, and private investment will not be sufficient to meet the economy’s potential and needs. What is the best way to keep that momentum going? As a result of that virtuous loop. In a typical year, the private sector invests the majority of the money. Public investment, also known as public sector investment, serves as a supplement. But, in our opinion, the government will have to crowd in by 2022-23, which is why there is a plan to significantly increase public capex.

Can we still look at off-budget packages during the year to keep the economy on track and avoid any future pandemic outbreaks?

Although the budget is a once-a-year process, it does not rule out doing everything it takes to boost growth and give additional support. Throughout the year, the government takes steps. When the budget for 2021 was revealed last year, the general consensus was that India would not see the second wave, but it did, and in June, a package was announced.

Do we have the financial resources to increase our investment?

While financial flexibility is required, it is also vital. Despite the government’s stimulus programme last year, which gave support on the magnitude of 3 lakh crore or more, the fiscal deficit has only increased modestly to 6.9. We managed it last year, and we want to do so again this year, with a deficit of 6.4 percent of GDP. We will get to that point.

Are we on track to achieve fiscal consolidation, and have we abandoned the goal of a 3% budget deficit by 2026, even though the glide path targets a 4.5 percent deficit?

That is a concept we should avoid at all costs. You experienced a 9.2% deficit in 2020-21 due to an unprecedented pandemic, a once-in-a-century occurrence. Once a pledge is made, it must be kept; a 4.5 percent increase over four years has been stated. When we come close to it, we must consider what we need to get after that. On the fiscal policy front, one must make a judgement based on what is required and the environment. We are not losing sight of our goal; in fact, we are well on our way to achieving it.

Is there any mention of digital money in this year’s budget? What shape and form will it take? When can we expect it to be released?

In terms of the digital rupee, the announcement states that it will function similarly to existing currencies but with a distinct technology. Today’s technology includes coin minting and note printing, but we’ll soon have a third technology in the form of blockchain and other related technologies. It will be a digital rupee that will require an electronic medium and a gadget to transact with. Digital money will have the ability to be programmed. We will develop appropriate products and services using the digital rupee, and smart contracts may be written. It will result in significant improvements in terms of economic digitalization and ease of transfer not just within the country but also across jurisdictions. The currency will be launched between 2022 and 2023. It was announced in the budget following consultation with the RBI, and the launch date will be determined when it is ready.

The budget plan on crypto currency taxation appears to be a step toward legitimizing its use in the country?

Let me be clear: the digital rupee will be the country’s first and only digital currency. Crypto, in its broadest meaning, is a digital asset based on cryptography. Those aren’t legal tender. Cryptocurrency is not being legitimized by taxes. Any income, with the exception of those specifically exempted under the IT Act, is taxable.

But when will there be laws to govern cryptocurrency?

At this moment, the government has not taken a position on the best policy approach to crypto. Stakeholders, particularly institutional stakeholders, are being consulted. Stakeholders with a mandate for macroeconomic stability, such as the Financial Stability Board, the International Monetary Fund, and the World Bank. One thing is clear: any regulation of crypto assets during the course of the year, including banning, is only conceivable when there is widespread knowledge among various countries. This conversation is now underway, and it will determine the government’s proper policy response.

Next year, we plan to borrow Rs 14.95 lakh crore. Will it cause bond yields to rise and interest rates to rise, making borrowing more expensive?

What matters is the net amount of borrowing, and we must consider the fiscal deficit because it will be funded from numerous sources. And that number is 16.6 lakh crore, with a total of 15.9 lakh crore for FY22. The deficit is funded through a combination of market borrowings, minor savings, and PF money. As a result, if tiny savings are bigger than expected, market borrowings will be reduced.

Monetary tightening will occur all around the world as a result of global inflation. This will have an influence on the cost of funds, which will have a direct impact on growth…

I don’t believe there is an immediate risk to growth. We are in a very solid position, perhaps stronger than ever before, to withstand whatever impact the tightening of monetary policy by large nations has on us.

What is the inflation forecast? Given the increasing commodity prices, will it breach the tolerance level in FY23?

The CPI Inflation in the coming year will be well within the policy band, and even WPI I see a lot of moderation in the coming year for two reasons: one, the current year’s high base rate, and second, my sense is that the global commodity process will cool down due to major economies’ tightening of monetary policy. Commodity prices tend to soften when interest rates rise.