The Union Finance Minister announced the Budget 2022 with a flurry of Reforms focusing towards building up the capital expenditure in the country. We will be focusing on a few reforms and the targets set by the government in this budget.
To Introduce the Budget theme we would call it a “CHARISMATIC” budget focused towards boosting growth, increasing disposable incomes & brining back manufacturing to India. Lets first divide the budget under 2 heads to understand its components better.
1.) GDP numbers and the targeted GDP for FY2022 – 2023: –
The country has reported a real GDP decline to 6.6% compared to a 7.3% contraction previously estimated for the FY21.
2.) Fiscal Deficit Number for FY 2022-2023: –
Finance Minister Nirmala Sitharaman has pegged the government’s fiscal Deficit for the financial year 2022-2023 at 6.4% of GDP as the budget recognised the need to boost growth. The union government’s fiscal deficit was down 35.3% year on year at Rs.6.96 lakh crore in April – November 2021 period, accounting for 46.2% of the budget estimated for the current financial year, as tax collections remained robust and spending muted.
The Budget 2021-22 pegged the fiscal deficit for the full year at 15.07 lakhs crore or 6.8% of GDP, which has been revised to 6.9%. The budget has proposed a fiscal deficit of 4.5% of GDP by 2025-2026.
So, are these two components positive or negative?
As it is an impossible, to boost growth and reduce deficit at the same time, the finance minister has done an excellent job in managing same. She has not diverted much from the fiscal deficit targets and still managed to boost growth thru capital expenditure.
A silver lining for indicating economic growth was GST collection which recorded the highest ever collection touching 1.40 lakh crores in just the month of January 2022.
Moving to the theme of the Budget- it is “CHARISMATIC”!!
C – Capex Driven Growth
H – Housing & Urban Planning
A – Agriculture
R – Railways
I – Infrastructure
S – Start Up India
M – MSMEs
A – Automation & Digital Economy
T – Tax Reforms
I – Initiatives
C – Climate Change
Moving forward we would try and analyse the budget under each of the heads with the possible impacts it could bring on the growth based on the theme.
Capital Expenditure: –
- Capital expenditure target expanded by 35.4 per cent from Rs 5.54 lakh crore to Rs 7.50 lakh crore. FY23 effective capex seen at Rs. 10.7 lakh crore.
- The goal here is growth with all inclusive welfare through digital economy, fintech, tech-enabled developments, energy transition and climate action plans.
- Though the government is yet to come up with revenue mobilization plan as disinvestment announcements have been a missing part of the budget but the Indirect tax collections from GST have been astonishing and if the trend continues the government is unlikely to see any difficulty in achieving its capex target.
Housing & Urban Planning: –
- Rs 48, 000 crore is allotted for PM Awas Yojana
- In 2022-23, 80 lakh houses will be completed for identified beneficiaries of PM Awas Yojana; 60,000 houses will be identified as beneficiaries for PM Awas Yojana in rural & urban areas
- 60,000 crores allocated for providing access to tap water to 3.8 crore households
- In 2022-23, 80 lakh households will be identified for the affordable housing scheme
- A high-level committee for urban planners and economists to be formed for recommendations on urban capacity building, planning implementation, and governance.
- 5 existing academic institutions for urban planning to be designated as Centre for Excellence with endowment fund of Rs 250 cr
- Modern building by-laws will be introduced
- A high-level panel to be set up for urban planning
- Govt to pay Rs 2.37 lakh crore towards procurement of wheat and paddy under MSP operations
- 2022-23 has been announced as International Year of Millets
- A rationalised scheme to increase domestic oilseed production will be brought in to cut down imports
- Kisan Drones for crop assessment, land records, spraying of insecticides expected to drive a wave of technology in agri sector
- Ken Betwa river linking project worth Rs 44,605 crore announced
- Natural farming will be promoted along Ganga river corridor
- A completely paperless, e-bill system will be launched by ministries for procurement
- Financial support will be provided to farmers to take up agro-forestry
Railways & Travel: –
- 400 new generation Vande Bharat trains to be manufactured in next 3 years
- 2,000 km of rail network to be brought under indigenous technology KAWACH for safety and capacity augmentation: FM
- ePassports will be rolled out in 2022-23 for convenience in overseas travel
- E-passport with embedded chip will be rolled out
- One product one railway station will be popularised
- Connectivity has been a major barrier for India for the last 60 years and the time to reach uncommuted areas with abundant resources has been substantially higher.
- With Modernization and efficient utilization of available resources the government plans to reach the rural population and connect it with major urban cities thru the same network line available making it accessible for the people and businesses.
- National highway network to be expanded by 25,000 kms during FY 22-23
- Desh stack e-portal to be launched to promote digital infra
- Strategic transfer of ownership of Air India completed now
- 2,000 kms to be brought under Kavach by FY 22-23
- Four multi-modal national parks contracts to be awarded in FY23
- PM Gatishakti masterplan for expressways will be formulated in next financial year
- 100 PM Gati Shakti terminals to be set up in next three years
- PM Gati Shakti will pull forward the economy and will lead to more jobs and opportunities for the youth.
- This capex plan will help in generation of employment opportunities in rural and urban areas.
Start Up India
- A fund with blended capital raised under co-investment model facilitated through NABARD to finance startups in agriculture & rural enterprises for farm produce value chain
- Startups will be promoted for Drone Shakti
- PE/VC invested Rs 5.5 lakh crore in startups, expert committee will be set up to suggest measures to help attract investment.
Start up India has been a flagship program of the Modi government since inception and the focus has been primarily to boost the Start-up eco system. The employment boost which the country has received with the emergence of start-ups has been tremendous.
The budget has given extensions on the reliefs being provided to start ups which will boost the eco system further.
MSMEs & Make In India
- Rs 6,000 crore program to rate MSMEs to be rolled out over 5 years
- MSMEs such as Udyam, e-shram, NCS & Aseem portals will be inter-linked, their scope will be widened
- They will now perform as portals with live organic databases providing government to customer, business to customer & Business to business services such as credit facilitation, enhancing entrepreneurial opportunities
Automation & Digital Economy: –
- Rs 1 lakh crore financial assistance to states to be provided in 2022-23 to catalyse investments
- Measures will be taken to step up private capital in infra sector
- 100% of 1.5 lakh post offices will come on the core banking system, enabling financial inclusion and access to accounts through net banking, mobile banking, ATMs, and also provide online transfer of funds between post office accounts and bank accounts
- This will be helpful especially for farmers and senior citizens in rural areas, enabling inter-operability, and financial inclusion.
- 75 digital banks in 75 districts will be set up by scheduled commercial banks to encourage digital payments
- World-class university to be allowed in GIFT IFSC free from domestic regulation, says FM
- With digital transactions coming to the forefront there has been a huge opportunity creation for digital innovation in the financial sector. Reaching the unbanked areas digitally have been on priority for this government since 2014. Though the government has received partial success in its objective of making transactions totally digital but it still has a long road ahead.
- Digital transactions can be routed through various mediums and can play a major role in curbing the parallel economy running. The robustness and belief of people on digital platforms have to increase for it to be accepted throughout the country. The mechanism to detect frauds also have to be strengthen to determine and address the redressals of victims for these frauds.
- Digital transactions will definitely boost the revenue collections for the government by curbing the parallel unaccounted economy.
- The government will tax income from digital asset transfers at 30%
- No deduction allowed while computing income except cost of acquisition of digital assets
- Loss cannot be set off from any other income of digital assets
- Gift of digital assets can to be taxed at receiver’s end
- A new provision to allow taxpayers to file an updated return
- Updated return can be filed within 2 years from the end of the relevant assessment year.
- Alternate Minimum Tax for cooperative societies to be cut to 15%
- Proposal will reduce surcharge on cooperative societies to 7%, for those whose income is between Rs 1 crore and Rs 10 crore
- Tax deduction limit increased to 14% on employers’ contribution to NPS account of state govt employees
- A major step towards vivad se viswas has been taken by the government by allowing updating your return within 2 years from the relevant assessment year. This step is likely to boost the confidence of people who skip filing returns just because of the fear of missing out something while filing the return or an error in reporting or computing their tax.
- A tax on digital assets is again a big move which can impact the crypto markets negatively as cryptos are considered as digital assets traded and any profits from these assets would be charged a flat tax of 30% which is higher than the current LTCG and STCG applied on any of the assets.
- Also, a boost to make in India can be seen with concessions being given to cooperatives and increasing the taxes on imported goods. The taxes on imports is in line with the policy of the government for going vocal for local and this can definitely bring in some acceptance for locally manufactured goods.
- ECLGS cover expanded by Rs 50,000 to Rs 5 lakh crore
- Top focus of the budget this year are: PM Gati Shakti, Inclusive Development, Productivity Enhancement, Sunrise Opportunities, Energy Transition, Climate Action, Financing of investments
- Productivity-linked incentive schemes in 14 sectors have received excellent response; received investment intentions worth Rs 30 lakh crore
- ECLGS extended till March 2023, 60 lakh jobs eyed in next 5 years
- Efforts of central, state governments leading to jobs, entrepreneurial opportunities
- Digital ecosystem for skilling and livelihood to be launched.
- This will aims to skill, reskill, upskill citizens through online training.
- API based skill credentials, payment layers to find relevant jobs and opportunities
Climate & Net Zero
- Risks of climate change are strongest externalities for the world
- Funds will be used for projects that will help reduce carbon intensity of the economy
- Sovereign green bonds will be part of government’s borrowing program in FY23
- Proceeds to be deployed in public sector projects
- 4 pilot projects for coal gasification to be set up
- Rs 19,500 cr additional allocation for PLI for manufacturing high efficiency solar modules has been made
- Low carbon development strategy opens up employment opportunity
- With carbon emissions being a cause of concern for the environment in the long run the government has taken a strong step to reduce the emission and still continue on its growth trajectory. Though carbon emission control has been a major cause of concern for the industry for a long time now but projects have been staggered in this space.
- Renewable energy companies are expected to benefit out of projects which are been taken up by the government in this space with the clear intent of becoming net zero on emissions.
Other Policy Reforms
- Battery swapping policy to allow EV charging stations for automobiles will be framed
- Private sector will be encouraged to create sustainable and innovative business models for battery and energy as a service, improving the efficiency in the EV ecosystem
- States to be encouraged to revise syllabi of agricultural universities to meet needs of natural, zero-budget & organic farming, modern-day agriculture
- One class, one TV channel’ program of PM eVIDYA will be expanded from 12 to 200 TV channels
- This will enable all states to provide supplementary education in regional languages for classes 1 to 12
- Digital university to be set up to provide education; to be built on hub and spoke model
- 1-Class-1-TV Channel to be implemented to provide supplementary education to children to make up for loss of formal education due to Covid
- An open platform for the national digital health ecosystem will be rolled out
- It will consist of digital registries of health providers and health facilities, unique health identity and universal access to health facilities
- 95 per cent of 112 aspirational districts have made significant progress in health, infra
- For mental health counselling, a National Tele Mental Health Program will be launched
- Spectrum auction will be conducted in 2022 for the rollout of 5G
- Scheme for design led manufacturing to be launched for 5G ecosystem as part of PLI scheme to enable affordable broadband and mobile communication in rural and remote areas
- 5 pc of USO Fund to be provided for R&D and technology upgradation
- Contracts for laying optical fibre in villages to be awarded under BharatNet project under PPP in 2022-23
- Data Centre and energy storage system to be given infrastructure status; move to provide easy financing
- Recognising the importance of ‘Nari Shakti’, 3 schemes were launched to provide integrated development for women and children
- 2 lakh Anganwadis to be upgraded for improving child health
- 75,000 compliances have been eliminated and 1,486 union laws repealed to make it easier for businesses
- Next phase of ease of doing business, ease of living to be launched
- Voluntary exit for corporates to be cut down to 6 months from 2 years
- Govt committed to reduce import and promote self-reliance in defense sector
- 68 per cent of capital for defense sector to be earmarked for local industry
- Defense R&D will be opened up for industry, startups and academia with 25% of defense R&D budget.
Private industry will be encouraged to take up the design and development of military platforms and equipment in collaboration with DRDO and other organizations through SPV model.
68% of capital procurement budget in defense will be earmarked for domestic industry in 2022-23 (up from the 58% last fiscal)
It is evitable to believe that the government has worked charismatically towards preparing a budget focused towards bring growth back on track and at the same time maintained the balance of fiscal deficit which was quite a challenging task. The budget estimate shows that, the government is planning to generate 58% of its revenues via taxes which also seems to be an optimistic number.
To talk about the misses the government has missed out on fixing short term issues in the personal income tax category. With the revenue reaching 1.40 lakh crore for Indirect taxes the government had some leeway for reducing taxes for individual tax payers. Overall, we are quite optimistic on the budget and the policies of the government seem to be in the right direction.
– Sushant Oberoi