As India's government defers a long-awaited overhaul of its fragmented capital gains tax system to the next budget cycle, it turns instead to the monetisation of state assets — a quieter, less disruptive form of fiscal creativity. The decision reflects a recurring tension in large democracies: the gap between the reforms that experts say are necessary and the political and administrative bandwidth available to execute them. Meanwhile, the rural economy — where the majority of Indians live — continues to absorb the quiet pressure of shrinking real wages and rising prices, a reminder that macroe
Budget delays capital gains tax reform; govt eyes record asset monetisation
Rural consumers are earning less while prices climb faster than in cities.
Mark
Why push the capital gains tax reform to next year when industry is asking for it now?
Mimi
The government sees it as a complex structural change that needs proper groundwork. You can't rush something that touches every asset class and holding period without creating unintended consequences. They're buying time.
Mark
And the asset monetisation push—is that just a way to avoid raising taxes or cutting spending?
Mimi
It's both practical and political. You generate cash by leasing assets you already own, which means no new revenue measures and no spending cuts. It's attractive when you're under budget pressure.
Mark
Ola Electric making its own batteries—how significant is that?
Mimi
It's a bet on vertical integration. If they can produce cells cheaply at scale, they control a major cost and supply chain risk. But early next year is still months away, and manufacturing at that scale is harder than it sounds.
Mark
The rural wage contraction is striking. What does that mean for consumption?
Mimi
It means rural consumers are getting poorer in real terms. A monsoon won't fix that overnight. You need sustained income growth, not just better weather.
Mark
Coal stocks at 47% of normal—how worried should we be?
Mimi
Worried enough to pay attention. Power demand is climbing, monsoon logistics are unpredictable, and you can't quickly replace coal supply. If there's a supply shock, rolling blackouts become possible.
Mark
The market opened flat. Is that the whole story?
Mimi
It's a signal of caution. No major catalyst, no clear direction. Investors are waiting to see how the year unfolds—whether rural demand recovers, whether inflation eases, whether the government's spending plans hold up.
Il Polso
- Capital gains tax reform, long demanded by industry for its inconsistent treatment of asset classes and holding periods, has been quietly shelved until the FY26 budget — leaving market friction in place for another year.
- To compensate for deferred structural reform, the government is pushing asset monetisation to a record Rs 2 trillion target, leasing out roads, mines, airports and power infrastructure without surrendering ownership.
- Rural India is caught in a compounding squeeze — real wages contracted in 25 of 27 months through February 2024, while rural inflation has outpaced urban inflation for eleven straight months, dimming hopes for a consumer-led recovery.
- Government capital expenditure by public enterprises fell by a third in April–May compared to last year, with election-season paralysis slowing the infrastructure spending that underpins growth projections.
- Coal stocks at thermal power plants have fallen to 66% of normative levels nationwide, raising supply concerns precisely as monsoon rains disrupt logistics and power demand climbs.
- Equity markets entered the week in a cautious, near-flat posture, with the Nifty 50 and Sensex both edging lower — a mood that mirrors the broader uncertainty hanging over the budget season.
As India's government defers a long-awaited overhaul of its fragmented capital gains tax system to the next budget cycle, it turns instead to the monetisation of state assets — a quieter, less disruptive form of fiscal creativity. The decision reflects a recurring tension in large democracies: the gap between the reforms that experts say are necessary and the political and administrative bandwidth available to execute them. Meanwhile, the rural economy — where the majority of Indians live — continues to absorb the quiet pressure of shrinking real wages and rising prices, a reminder that macroeconomic strategy and lived experience do not always move in the same direction.
India's government has decided to postpone any restructuring of the capital gains tax system, pushing the overhaul into the FY26 budget cycle. The current framework is widely criticised for its inconsistency — different rates apply to different asset classes, holding periods vary arbitrarily, and similar instruments are taxed differently. Tax experts and business groups have long called for rationalisation, but officials say there is simply not enough time to engineer systemic change responsibly before the July budget.
In place of tax reform, New Delhi is leaning on asset monetisation. The Centre has raised its FY25 target to a record Rs 2 trillion, up from Rs 1.67 trillion, as part of the broader National Monetisation Pipeline — a four-year programme targeting Rs 6 trillion by leasing operational state assets like roads, mines, airports and power stations rather than selling them outright. The approach generates cash while preserving ownership, freeing budget space for infrastructure and welfare. Ministries received fresh directives after the general elections concluded.
On the manufacturing side, Ola Electric's chairman Bhavish Aggarwal announced in Bengaluru that the company is months away from producing lithium-ion cells in-house at its 110-acre Gigafactory in Tamil Nadu's Krishnagiri district, with commercial-scale battery production expected to power its vehicles by early next year.
The consumer goods industry is watching the monsoon closely, hoping for a rural demand revival — but the underlying data offers little comfort. Real wages in rural India contracted in 25 of the past 27 months through February 2024, with February recording a sharp 3.1% decline. Rural inflation has simultaneously outpaced urban inflation for eleven consecutive months. The arithmetic is unforgiving: rural consumers are earning less in real terms while prices rise faster than in cities. A seasonal bounce is possible; a durable recovery looks distant.
Public sector capital expenditure also slowed sharply, falling by a third in April and May compared to the same period last year — a consequence of election-season caution. The CPSEs carry a combined capex target of Rs 7.8 trillion for the full year, with railways and highways accounting for more than half. Coal inventories at thermal plants have meanwhile tightened to 66% of normative levels, raising supply concerns as the monsoon disrupts logistics and demand continues to climb.
The government has decided to shelve plans for overhauling the capital gains tax system, pushing what industry groups have been calling for—a comprehensive restructuring—into next year's budget cycle instead. The July budget will leave the existing tax framework untouched, according to officials briefed on the decision. The rationale is straightforward enough: there simply isn't time to engineer the kind of systemic change that tax experts and business leaders say is overdue. Right now, capital gains taxes are a patchwork. Different asset classes carry different rates. Holding periods vary. Even within the same category of investment, you'll find inconsistent treatment—one instrument taxed one way, another taxed differently. The consensus among those who study this for a living is that this fragmentation makes no sense and creates unnecessary friction in markets. But fixing it requires careful work, and the government has chosen to defer that work.
Instead, New Delhi is turning its attention to a different kind of financial engineering: the aggressive monetisation of state-owned assets. The Centre plans to raise its target for asset sales in the current financial year to a record Rs 2 trillion, up from an original goal of Rs 1.67 trillion. This is part of a larger four-year initiative called the National Monetisation Pipeline, which aims to unlock Rs 6 trillion by leasing out operational assets—roads, mines, power stations, petroleum infrastructure, airports—rather than selling them outright. The idea is to generate cash without surrendering ownership, freeing up budget resources for infrastructure spending and welfare programs. After the general elections concluded, ministries were given fresh marching orders to hit their targets, and the revised plan is expected to be finalized soon.
On the manufacturing front, Ola Electric, the EV startup preparing for its public market debut, says it will begin powering its vehicles with batteries made in-house by early next year. The company's chairman and managing director, Bhavish Aggarwal, announced at a press conference in Bengaluru that the firm is in the final stages of commercializing its own lithium-ion cell production. Ola is expanding the Ola Gigafactory, a sprawling 110-acre manufacturing complex in Tamil Nadu's Krishnagiri district, positioned near its two-wheeler assembly plant. Aggarwal indicated the company is only months away from locking in the production process and moving to commercial scale.
The monsoon's return after a weak June is being watched closely by the consumer goods industry, particularly those betting on rural demand. But executives speaking to analysts express caution. The underlying numbers tell a sobering story. Real wages in rural India have contracted in 25 of the past 27 months through February 2024, according to data from the Centre for Monitoring Indian Economy. February itself saw a sharp 3.1% contraction—the worst on record except for a 2.9% drop in September 2022. Meanwhile, rural inflation has outpaced urban inflation for eleven consecutive months through May. The combination means rural consumers are earning less in real terms while prices climb faster than they do in cities. A monsoon bounce in demand is possible, but a sustained rural revival looks gradual at best.
Capital spending by government enterprises and departmental agencies fell sharply in the first two months of the fiscal year. These entities—CPSEs with annual capex targets of Rs 100 crore or more—invested Rs 96,000 crore in April and May combined, down a third from the same period last year. April showed a modest 6.5% increase to Rs 50,206 crore, but May, the height of the election season, saw spending slow considerably. The CPSEs have set a combined capex target of Rs 7.8 trillion for the full year. Railways and highways account for more than half of that—Rs 4.29 trillion—since their budgets flow directly from government coffers.
Coal inventories at thermal power plants are tightening. Imported coal-based plants with a combined capacity of 17.9 gigawatts held just 2.28 million tonnes of fuel as of June 28, equivalent to 47% of what's considered normal. Across all thermal plants—both domestic and imported coal-fired—with 211 gigawatts of capacity, fuel stocks stood at 46.8 million tonnes, or 66% of the normative level. The concern is acute because power demand is rising and the monsoon season typically disrupts coal logistics. The government is bracing for supply constraints as the rains intensify.
On the equity markets, the mood heading into Monday was subdued. GIFT Nifty, which signals the likely direction of Indian indices, was trading down 4.50 points or 0.02% at 24,115.50, suggesting a flat opening for the Sensex and Nifty 50. The previous Friday had seen both indices decline—the Nifty 50 fell 33.90 points or 0.14% to close at 24,011, while the Sensex dropped 211 points or 0.27% to 79,033. Traders were watching BEL, Future Retail, ITC, Tata Steel, and Cochin Shipyard for signals.
Citazioni salienti
Early next year is when you can see our own cells in our own products— Bhavish Aggarwal, Ola Electric chairman and managing director
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Economy & Finance