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Indian government plans debut green bond sale, digital assets tax


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Indian government plans debut green bond sale, digital assets tax

Indian Finance Minister Nirmala Sitharaman on Feb. 1 presented the government's budget for the next fiscal year that starts April 1. Here are the key proposals for banks and financial institutions.

Green bonds: The Indian government will issue green bonds for the first time as part of its borrowing plan to mobilize resources for green infrastructure. "The proceeds will be deployed in public sector projects which help in reducing the carbon intensity of the economy," Sitharaman said in the budget speech. The government did not specify the amount of green bonds it may sell.

Indian Prime Minister Narendra Modi surprised the United Nations Climate Change Conference, or COP26, at Glasgow, Scotland, in November 2021 by announcing that the second-most populous nation on the planet will aim for net-zero, or the removal of all human greenhouse gas emissions from the atmosphere through reduction measures, by 2070.

Indian corporates issued $6.11 billion in green bonds during the first 11 months of 2021, according to U.K.-based green bond tracking agency Climate Bonds Initiative. It was the strongest year since green bonds from the country were first issued in 2015, and sales this year are set to touch a new record.

Digital rupee: The Reserve Bank of India will introduce a digital rupee, using blockchain and other technologies, in the next fiscal year. The proposed central bank digital currency, or CBDC, "will give a big boost to [the] digital economy. Digital currency will also lead to a more efficient and cheaper currency management system," Sitharaman said, without giving more details.

Several global central banks are planning to issue blockchain-based digital versions of their currencies. The U.S. Federal Reserve recently released a discussion paper looking into the benefits and risks of a potential U.S. CBDC. Swiss and French central banks are collaborating with the Bank for International Settlements to explore the potential of using wholesale CBDCs for cross-border settlements. China too is testing its own CBDC.

Central banks, rather than private companies, should be the ones to take the lead on developing digital currencies, a BIS official said in February 2021, after a survey by the organization showed 86% of 60 central banks polled during 2020 said that they were exploring the possibility of launching their own digital currencies.

Tax on digital assets: India is proposing to tax income from the transfer of any virtual digital asset at the rate of 30%, the finance minister said. The "phenomenal increase" in transactions of virtual digital assets and their magnitude have made it imperative to provide for a specific tax regime, Sitharaman said. The government will not allow any deduction for expenses while computing income from digital assets, save for the cost of acquisition, the minister said, adding that any loss from transfer of virtual digital asset will not be allowed to be set off against any other income. Digital assets such as cryptocurrencies and non-fungible tokens received as gifts will also be taxed.

Several countries globally are seeking to regulate the use of digital assets, primarily cryptocurrencies. China and a few other countries have banned cryptocurrencies, while Thailand said on Jan. 25 that it would regulate payments for goods and services using digital assets to avoid any potential harm to the nation's financial stability and economic system.

Capex and borrowing: The federal government plans to spend 7.502 trillion rupees of capital expenditure in the fiscal year starting April 1, an increase of 35.4% over the current year. The capital expenditure outlay will be 2.9% of the nation's GDP. Sitharaman said India's capital expenditure outlay has increased more than 2.2 times the amount spent in the fiscal year that ended March 31, 2020. After including grants to state governments to create capital assets, total spending by the federal government is estimated at 10.679 trillion rupees, or 4.1% of GDP, in the next fiscal year, Sitharaman said.

"Capital investment holds the key to speedy and sustained economic revival and consolidation through its multiplier effect," Sitharaman said.

Borrowings via government securities and treasury bills are projected to rise to 11.587 trillion rupees in the next fiscal year, compared with 8.758 trillion rupees in the current fiscal year, according to the budget documents. The borrowings would include the proposed new green bonds.

As of Jan. 31, US$1 was equivalent to 74.66 Indian rupees.