Budget 2022 Unraveled

As India continues to reel from the ramifications of this seemingly perpetual global pandemic, the month of February began with all anticipating eyes set on budget 2022, expecting a glimpse of clarity with regard to India’s trajectory to recovery and a promising future ahead. There seemed to be a general consensus that primarily, the budget should aim to lay out a blueprint that would give an impetus to the fragile Indian economy and foster a strong ecosystem for innovation as the world goes through seismic changes. In the midst of all this bustle, FM Sitharaman delivered to us what has rightly been termed as a growth-oriented budget – one that envisions India on a sustainable, upwards path.

2022 will be seen as the year of revival – it is the year of celebration of 75 years of India’s independence i.e. “Azadi Ka Amrit Mahotsav”, which marks the onset of Amrit Kaal, the 25-year-long lead-up to India@100. The fundamental tenets of budget 2022 gave us a transparent reflection of the government’s intent, strengths, and challenges as India endeavours towards growth that is both inclusive and futuristic.

With this goal in mind, FM Sitharaman laid the following four priorities in this year’s budget:

PM GatiShakti – a transformative approach for economic growth and sustainable development that will be driven by the following seven engines: Roads, Railways, Airports, Ports, Mass Transport, Waterways, and Logistics Infrastructure. These engines will “pull forward the economy in unison” and will be reinforced by Energy Transmission, IT Communication, Bulk Water & Sewerage, and Social Infrastructure. Moreover, the approach is powered by Clean Energy and Sabka Prayas i.e.,the combined efforts of the central government, state governments, and the private sector – thus, creating huge job and entrepreneurial opportunities.
Inclusive Development – This will be ensured by a commitment towards propelling sectors like agriculture and food processing, education, skill development, health, and micro, small, and medium enterprises (MSMEs).
Productivity Enhancement & Investment, Sunrise Opportunities, Energy Transition, and Climate Action – With the advent of Amrit Kaal, Ease of Doing Business 2.0 and Ease of Living will be launched. Sitharaman conveyed that it is the “endeavour of the Government to improve productive efficiency of capital and human resources,” and that the Government will follow the idea of ‘trust-based governance’. Crowdsourcing of suggestions and ground-level assessment of the impact through active involvement of citizens and businesses will also be encouraged.
Financing of Investments – Capital investment is paramount for a swift and sustained economic revival, given the crucial role it plays in creating employment opportunities and inducing enhanced demand through its multiplier effect. Considering this, the outlay for capital expenditure in the Union Budget is being steeply increased by 35.4 % from Rs.5.54 lakh crore in the current year to Rs.7.50 lakh crore in 2022-23 – which will be about 2.9 % of GDP. Effective capital expenditure is estimated to be 4.1 % of GDP.

The aforementioned priorities lay the roadmap for policy goals, which have the following broad aims:

Aligning India’s macroeconomic growth with all-inclusive welfare at a microeconomic level
Promoting digital economy and fintech, technology-enabled development, energy transition and climate action
Relying on a virtuous cycle that starts from private investment coupled with public capital investment – which will then further crowd in further private investment.

In the face of massive setbacks caused by the pandemic, India has shown considerable resilience – with an estimated growth rate of 9.2% for 2021-2022, which is the fastest amongst all large economies.

The government envisions inclusive development working in tandem with the digital and green economic agenda, while multimodal transport and logistics projects target better connectivity. Although risks of severe infection, supply-side disruptions, weak labour market, and inflation remain key concerns, the GDP growth rate is estimated at a reasonably healthy 8 – 8.5 % rate in 2022-23. The deficit for FY22 is expected to be 6.9 %, and is estimated to reduce to 6.4% in FY23 -a figure which may be considered consistent with the target to reach a fiscal deficit of 4.5% by 2025-26, but still makes the prioritisation of a much needed economic boost very clear.

Before we delve into a deeper analysis of the budget, here is a cursory glance at the ministerial allocation:

Some Initiatives that especially stood out

Detailed Summary

The Union Budget was delivered at a time when the Omicron wave was already receding, the vaccination programme was in full swing, and the economic sentiment was mostly positive, with favourable responses to the Production Linked Incentive (PLI) schemes, strong revenue collections, coruscating startups, and a large number of Unicorns in the country. With this, the government got an opportunity to focus on a much wider spectrum of fields.

Apart from the major developments in fields like cryptocurrency and EVs, and announcement of the digital rupee and E-Passports, the Budget addressed a plethora of sectors and fields, some of them for the very first time. It introduced several new programmes and initiatives to make the best use of the continuously developing technology and Artificial Intelligence, and at the same time stay up to date with the needs of various sectors and citizens.

The Indian Railways was one of the beneficiaries, with the expansion of “Kawach Tech”, an anti-collision technology designed to prevent train accidents. Additionally, it was announced that 400 new generation Vande Bharat trains would be manufactured over the next 3 years. The railways would also develop efficient logistics for small farmers and enterprises under the “one product one station” scheme.

The usage of drones was also encouraged, with Start-ups being promoted to popularise ‘Drone Shakti’ through various applications and promote drone-as-a-service. ‘Kisan drones’ were also introduced to help farmers with crop assessment, land disputes and spraying of pesticides. For framers, duties were reduced on inputs required for shrimp aquaculture to promote exports.

Globally, the pandemic has taken a toll on the mental health and well being of individuals, something that has been ignored hitherto. According to estimates, at least one in eight Indians have a mental affliction. Keeping this in mind, the government announced the ‘National Tele Mental Health Programme’, a network of 23 tele-mental health centres of excellence. Telemedicine greatly enhances accessibility for patients requiring psychiatric help and counselling, and, given the unobtrusive nature of the interaction, also maintains patient privacy. Mental health start-ups in the country have also seen exponential growth in the last fiscal year. The National Digital Health Ecosystem, an extension of the various initiatives announced under the Ayushman Bharat Digital Mission, shall help create a comprehensive and interoperable network to store and fetch health records. The government, through this open platform, seeks wider adoption and innovation encompassing start-ups, with the key being to extend coverage to the million-plus providers in the country and bring them to this platform.

The Covid Pandemic brought about disruptions in a plethora of sectors, and education was not spared. While Urban areas, where students had access to the internet and devices could cope up, rural areas were unable to. To make up for the loss of formal education due to Covid, it was announced that the “One class, one TV channel” program of PM eVIDYA will be expanded from 12 to 200 channels to enable all states to provide supplementary education to children in regional languages for all classes. The government also announced the establishment of a centralised digital university to be built on a hub and spoke model, to provide access to students from across the country for world class quality universal education with a personalised learning experience at their doorstep. The government also announced the launch of the National Skill Qualification Framework (NSQF) to cater to dynamic industry needs. The FM also announced that five institutes will be designated as “Centres of Excellence” for capacity building in urban planning, and be given ₹250 crore each.

The budget also brought about reforms in the banking sector. 100% of the 1.5 lakh post offices in the nation would be brought under the Core Banking System in 2022. This would promote financial inclusion and access to accounts through net banking, mobile banking, ATMs, and provide online transfer of funds between post office accounts and bank accounts. To promote digital banking, a total of 75 digital banking units would be set up in 75 districts of the country by scheduled banks. The government also extended the Emergency Credit Line Guarantee Scheme until March 2023, and at the same time increased the guaranteed cover by Rs 50,000 crore to INR 5,000bn, with the additional amount earmarked exclusively for the hospitality and related enterprises.

The budget also indicated the government’s vision and focus towards tackling climate change, promoting eco-friendly products and services, and adoption of green energy. The issue of sovereign green bonds was announced, the proceeds of which would be deployed in public sector projects to help reduce the carbon intensity of the economy. An additional allocation of INR 195bn will be made for the Production Linked Incentives for manufacturing high-efficiency solar photo-voltaic modules. The scheme would boost the 2021 United Nations Climate Change Conference’s commitment of embracing green energy, and at the same time encourage the ‘Make in India’ initiative. To improve efficiency in the Electric Vehicle ecosystem, and accelerate India’s transformation towards clean and green mobility, a battery swapping policy will be brought out and interoperability standards will be formulated. The private sector will be encouraged to develop sustainable and innovative business models for ‘Battery or Energy as a Service’.

The Finance Minister also announced the next phase of Ease of Doing Business and the extension of tax incentives for startups, along with the establishment of “One Nation, One Registration”. Startups and experts both welcomed the proposals, with the belief that the same shall give a boost to India’s startup culture. The FM also announced that 75,000 compliances have been eliminated and 1,486 union laws have been revoked to make it easier to do business in India. Furthermore, as a major relief to startups, the last date for the incorporation of start-ups eligible for claiming a tax holiday u/s 80-IAC has been extended to 31 March 2023.

Defence remains one of the most integral allocations in the budget, with INR 525,166 crore being allotted to the Ministry of Defence (MoD). The FM, in her speech, underlined India’s quest for self-reliance in defence. Prioritisation would be given to the domestic defence industry, and the need of the hour is to improve the research and development. Previously, 58% of the defence capital was reserved solely for domestic procurement. This has now been increased to 68%. Startups and the private sector are being encouraged to engage in R&D. The Budget has set aside 25% of the defence R&D budget for the private sector.

The budget also announced several initiatives and schemes with special focus on rural India. The Vibrant Village Programme was announced for northern border villages with a scanty population, limited connectivity and infrastructure. These villages will see the construction of village infrastructure, accommodation, tourist centres, road connectivity, provisioning of decentralised renewable energy, and direct home access for television channels, alongside support for livelihood generation. The government also announced the laying of optical fibre networks for all villages to supply all villages access to e-services, communication establishments, and digital resources. The contracts for the networks will be granted under the Bharatnet project through PPP in 2022-23, and completion of the same is expected in 2025. The “Har Ghar, Nal se Jal” programme would also be expanded to ensure access to clean tap water to all homes across the county.

The government also launched several programmes with special focus on women empowerment, including Mission Shakti, Mission Vatsalya and Poshan 2.0. A total of ₹ 1,71,006.47 crore has been allocated for women-centric schemes under both parts of the Gender Budget.

To employ youth, and build domestic capacity for serving Indian markets and the global demand in the Animation, Visual Effects, Gaming and Comic (AVGC) sector, a promotion task force with all stakeholders would be set up.

One of the major highlights of the budget was the introduction of the tax on Virtual Digital Assets, with the same being defined under the Income Tax Act to include cryptocurrency and NFTs in addition to other digital assets. The move was met with mixed reactions, as on one hand, the Income from such assets would be highly taxed, but on the other, they finally gained legal recognition. Income from the transfer of a VDA would be taxed at a fixed rate of 30%, with additional surcharge as applicable. No expenditures apart from cost would be allowed as a deduction, and no losses can be carried forward. Additionally, a TDS of 1% would be levied on payment to a resident on the transfer of VDAs.

Apart from this, there were numerous small clarifications, amendments and extensions under Income Tax, including-

The maximum surcharge on long-term capital gains has been capped to 15%. Similarly, surcharge has been restricted to 15% for certain Association of Persons.
As a small relief to salaried individuals, medical treatment expenses related to Covid met by an employer for an employee or his or her family members would not be considered a taxable perquisite.
To ensure prompt and regular collection of TDS and TCS, a higher rate of TDS/TCS will be applied on certain payments where the payee has not filed income tax returns for the last Financial Year.
To encourage voluntary tax compliance, taxpayers will be allowed to furnish updated tax returns within 24 months from the end of the assessment year upon payment of 25% or 50% as additional tax.

The remarkably high GST collections were one of the most notable announcements, with collections touching a record Rs 1.40 lakh crore in January, owing to rapid recovery from the pandemic induced economic collapse.

FM Sitharaman also announced certain notable changes under Indirect Taxation, including-

The Customs Administration of SEZs will be made fully IT driven, and will function on the Customs National Portal.
The budget provides for phasing out of concessional rates in capital goods and project imports gradually, and applying a reasonable tariff of 7.5% – which will be conducive to domestic manufacturing and thus help realise the “Make in India” vision.
Customs exemptions across various sectors including electronics, chemical, textiles, medical devices and drugs would be rationalised with the aim of maintaining concessional rates for inputs used for manufacturing intermediate products, and reducing concessions on finished products without significantly impacting essential imports.

The shift of Focus:

The budget makes it evident that there has been a huge shift of focus to the digital world. The word ‘Digital’ was used 34 times in the 1 hour 30 minutes speech this year, while it was only repeated a total of 6 times in last year’s speech. Also, the finance minister continued last year’s precedent of narrating the Budget from a Tablet instead of paper . As a major step, the government has announced the release of its own Central Bank Digital Currency (CBDC), e-Rupee, as the next step towards digital payments. The government is also going to issue e-Passports with embedded chips, to upgrade the security of the citizens as well as to prevent duplication. Alongside, the government recognizing the need of setting up a National Digital Health Ecosystem is a significant step towards destigmatisation of, and provison of accessible support for mental health issues, and has been lauded nationwide. Lastly, the initiatives like ‘One Class One TV Channel’ and digital universities also indicate the shift of focus of the government towards digitalisation.

Witnessing record-high unemployment prevailing over the world, the budget strives for mass job and demand creation. The government is trying to move away from exports to a more integrated hub for employment and economic activities – quality infrastructure and ease of doing business. With PM Gatishakti being one of the key priorities this year, the budget mentions the expansion of the National Highway by 25000 km as well as the government’s plan to link rivers for easy transport of goods and reduce logistic and supply chain costs. Moreover, if the increased capex announced this year is used effectively and efficiently to boost the labor-intensive sectors while these infrastructural plans are executed properly, the expected multiplier effect will indeed come into effect to positively impact the core sectors of the economy and stimulate demand, thus creating around 6 million jobs as per the target.

Another new focus of the government that can be seen through the budget is Sustainable Development. The government is pushing green energy by bringing in several initiatives. The budget has put out a plan of installing a solar capacity of 280 GW by 2030 through allocating Rs 195 billion to PLI schemes for solar modules and cells. The battery swapping policy has increased the confidence of battery makers like Exide and Amara Raja Batteries Ltd. Further, one of the major steps taken by the government is the announcement of Sovereign Green bonds – a clear indication of increasing focus towards addressing the impending climate crisis.

From the macro perspective, the government is markedly shifting the focus from the consumption-led economy towards an investment-led economy.

Overall Analysis

The Finance minister presented a futuristic budget with a vision to support India’s journey towards becoming a stronger and more resilient economy, as it stages a world-beating recovery from the pandemic. With growth at its cornerstone, the budget has provided a booster dose in terms of fiscal stimulus for sustaining the economy in the short and medium-term. As promised, a “budget like never before” was indeed delivered – as it placed equal emphasis on growth and social objectives, and at the same time served the Government’s long-term vision of ‘Make in India’ and sustainable growth.

The Union Budget 2022-2023 was well received by the Indian equity market. Bulls cheered with the broad market indices ending in green when the budget was announced. The high Capex set out for the year infuses a sense of optimism in the market as it foreshows the exponential growth potential of the Indian economy. Specifically defence, metals, financial, cement, logistics, green energy rallied up. Initiatives like capital gains tax on the transfer of virtual assets and the introduction of Digital Rupee demonstrates the commitment to move with changing times.

However, the budget led to a fall in the debt market. The debt market participants are of pessimistic and doubtful concerns with regards to how exactly the government is going to spend the capex. Also, the expected rise in inflation is keeping the debt market in the red.

The introduction of a Central Bank Digital Currency was widely anticipated. However, it could have a significant impact on banks – on their deposit base for instance – and needs careful attention both from bankers and policymakers.

The budget has also been very positive for the start-up ecosystem. The government has put a fine balancing act and this will surely pave the way for many aspiring businesses and give an impetus to startups.

There were no changes made to the existing income tax structure, leaving the common man and some other sections disappointed. There were high expectations for some deductions in taxation, owing to the high inflation prevailing over the economy. The budget came with mixed emotions for crypto investors, as the government’s final recognition of crypto as virtual assets gave relief but the 30% tax rate and 1% TDS on its transactions are the pain points. The government prioritized spending in labor-intensive industries that could help create more jobs, particularly for low- and medium-skilled workers.

The Budget has clearly prioritized growth over fiscal consolidation, which is the right way to go in the near term. Further, the announcements reflect consistency and continuity, which is imperative for long-term sustainable growth. From here on, the strength and pace of the long-term economic recovery will be determined by the effective implementation of budgetary allocations.

Curated By: Deeplata Jha, Nitin Agarwal, Aarsh Parekh and Keshav Daruka

(Deeplata Jha is a 2nd year student pursuing B.Sc Economics at St. Xavier’s College (Autonomous), Kolkata and a Senior Associate of the Xavier’s Finance Community.)

(Nitin Agarwal is a 2nd year student pursuing B.Sc Economics at St. Xavier’s College (Autonomous), Kolkata and a Senior Associate of the Xavier’s Finance Community.)

(Aarsh Parekh is a 2nd year student pursuing B.Com(H) at St. Xavier’s College (Autonomous), Kolkata and a Senior Associate of the Xavier’s Finance Community.)

(Keshav Daruka is a 2nd year student pursuing B.Com(H) at St. Xavier’s College (Autonomous), Kolkata and a Senior Associate of the Xavier’s Finance Community.)