Budget 2024: Why government expenditure matters but so does regulation

Centre will likely continue its push towards easier access to capital and market and promote R&D and upskilling in the technology sector. Budgetary announcements are a good time to take stock of the health of neatly divided “sectors” of the economy and what their expectations are. It also helps gauge the Government’s focus areas in terms of expenditure, and its key revenue sources. However, it should be seen as just one such indicator in the overall scheme of things.

In budgetary terms, individual ministries are allocated funds for schemes and plans, and their potential revenues are mapped to form one consolidated Budget. The figures against the Ministry of Electronics and Information Technology (MeitY) accordingly, indicate what it means for the technology sector. In the 2024 Interim Budget, MeitY was allocated over 21,000 crore rupees, a 48% increase against the previous year. This is primarily to incentivise electronics manufacturing, develop semiconductors, enhance cyber security, and R&D in emerging technologies, such as blockchain, AI, data analytics and next-generation communications. There was an overall push in the Budget for greater access to capital - promised at 1 lakh crore rupees - for startups.

The budget could see announcements to support “DeepTech”, expected to be the next mainstream buzzword. This is an umbrella term encompassing the use of artificial intelligence, space technology, robotics, virtual reality and other technologies, and in the Government’s terms, it is based on “substantial scientific breakthroughs” which go beyond “surface level advancements”. The impact of this field cuts across sectors, from healthcare and financial services to fashion and retail. For example, DeepTech is used to achieve large-scale and diverse goals such as manufacturing in space, offering personalised medication, and drone-based delivery. Its commercialisation, especially for production-based companies, faces significant challenges, due to a lack of substantial long-term investment and specialised expertise. Announcements to allocate 10,000 crore rupees to the IndiaAI Mission, and to release a National Deep Tech Startup Policy have already been made, and more is awaited from the Budget.

However, there’s much more to technology than what MeitY governs. The once-common Ministry of Communications houses the Department of Telecom (DoT). From a budget perspective, this is the more significant agency, thanks to massive expenditures on telecom infrastructure and receipts from license fees and spectrum auctions. The health of this sector, as well as the allied media and entertainment sector, drives the health of consumer-facing technology businesses. The proliferation of Internet-based services based on affordable data access is a good example. Telecom constitutes one of the major non-tax revenue sources for the Government, though the muted response to spectrum auctions would dent those estimates this year. Expenditure on rural broadband, through BharatNet, and BSNL for its revival will predictably form a major chunk. The latter doesn’t add up to the Government’s otherwise progressive and speedy reforms in the sector, but that is a larger debate.

Overall, technology-enabled innovation continues to push boundaries and pervade all other “sectors”. This includes areas traditionally in the domain of the Ministry of Information & Broadcasting (MIB) and the Ministry of Commerce & Industry (MCI). Online gaming, new media and OTT, new-age commerce and various other tech-enabled innovations are good examples of this pervasion. While division into sectoral units is important for administrative ease, cohesion between them is key. Cohesion is an important segway into our last, and the first, point: indicators of the health of a sector.

While tracking Government expenditure in Budgets is important, equally important is considering the impact of regulations on the sector. We are at a critical juncture in technology regulation, as we start seeing the implementation of long-finalised reforms such as the data protection law, telecom law and space communications policy. Several other laws on broadcasting reforms, artificial intelligence and the larger information technology issues are taking shape. Many more on e-commerce and content keep coming up from time to time. We will closely follow any announcements on these fronts in the next few weeks generally. These will continue to define how well the industry progresses. As access to capital and market improves, stability in regulations is equally important for striking the right balance between innovation, government supervision and public interest.

(Shashank Mishra is Partner and Ritika Bansal is an Associate at Shardul Amarchand Mangaldas & Co.)

Disclaimer: The views, thoughts and opinions expressed in the article are solely the author’s and are not representative of the author's employer/ organisation.