Union Budget 2022-23: Highlights and Concerns – Explained, pointwise

Introduction

The Union Minister for Finance & Corporate Affairs has tabled the Union Budget 2022-23 in Parliament. This year’s Union Budget seeks to complement macroeconomic level growth with a focus on micro-economic level all-inclusive welfare.

While observing that India’e economic growth in the current year is estimated to be 9.2%; the Finance Minister remarked, “India is celebrating Azadi ka Amrit Mahotsav, and it has entered into Amrit Kaal, the 25-year-long lead-up to India@100… The budget lays a blueprint for (the next 25 years), which is futuristic and inclusive. …And (provide) big public investment for modern infrastructure, readying for India at 100.”

What are the major highlights of Union Budget 2022-23?

PLI Scheme

60 lakh new jobs to be created under the Production Linked Incentive scheme in 14 sectors. PLI Schemes have the potential to create an additional production of Rs. 30 lakh crore.

A new scheme for design-led manufacturing will be launched to build a strong ecosystem for 5G. Apart from that, the budget also announced 5G auctions in FY23.

Entering Amrit Kaal, the budget provides an impetus for growth along with four priorities:

Infrastructure: PM GatiShakti National Master Plan

The scope of PM GatiShakti National Master Plan will encompass the seven engines for economic transformation, seamless multimodal connectivity and logistics efficiency. The 7 engines include Roads, Railways, Airports, Ports, Mass Transport, Waterways and Logistics Infrastructure.

The budget also proposed a new PM Gati Shakti Master Plan for Expressways will be formulated in 2022-23 to facilitate faster movement of people and goods.

Road Transport: National Highways Network to be expanded by 25,000 Km in 2022-23 with outlay of Rs. 20,000 Crore.

Railways: a) One Station, One Product concept to help local businesses & supply chains. b) 2,000 Km of the railway network to be brought under Kavach, the indigenous world-class technology and capacity augmentation in 2022-23. c) 400 new generation Vande Bharat Trains to be manufactured during the next three years.

Parvatmala, National Ropeways Development Program: The program to be taken up on PPP mode. Contracts to be awarded in 2022-23 for 8 ropeway projects of 60 Km length.

Inclusive Development

Agriculture: a) Chemical-free Natural farming to be promoted throughout the county. The initial focus is on farmer’s lands in 5 Km wide corridors along river Ganga. b) ‘Kisan Drones’ for crop assessment, digitization of land records, spraying of insecticides and nutrients.

Ken Betwa project: Rs. 1,400 crore outlay for implementation of the Ken – Betwa link project which will benefit 9.08 lakh hectares of farmers’ lands.

MSME Sector: a) Udyam, e-shram, NCS and ASEEM portals to be interlinked. b) Emergency Credit Linked Guarantee Scheme (ECLGS) to be extended up to March 2023. c) Raising and Accelerating MSME performance (RAMP) programme with an outlay of Rs 6000 Crore to be rolled out.

Skill Development: a) Digital Ecosystem for Skilling and Livelihood (DESH-Stack e-portal) will be launched to empower citizens to skill, reskill or upskill through on-line training. b) Startups will be promoted to facilitate ‘Drone Shakti’ and for Drone-As-A-Service (DrAAS).

Education: a) ‘One class-One TV channel’ programme of PM eVIDYA to be expanded to 200 TV channels. b) Virtual labs and skilling e-labs to be set up to promote critical thinking skills and a simulated learning environment. c) Digital University for world-class quality universal education with a personalised learning experience to be established.

Health: a) An open platform for National Digital Health Ecosystem to be rolled out. b) ‘National Tele Mental Health Programme’ for quality mental health counselling and care services to be launched. c) Two lakh anganwadis to be upgraded to Saksham Anganwadis.

Water and Housing: a) Rs. 60,000 crore allocated to cover 3.8 crore households in 2022-23 under Har Ghar, Nal se Jal, b) Rs. 48,000 crore allocated for completion of 80 lakh houses in 2022-23 under PM Awas Yojana.

Prime Minister’s Development Initiative for North-East Region (PM-DevINE): New scheme PM-DevINE launched to fund infrastructure and social development projects in the North-East.

Vibrant Villages Programme: It is for the development of Border villages with sparse population, limited connectivity and infrastructure on the northern border.

Productivity Enhancement & Investment, Sunrise opportunities, Energy Transition, and Climate Action

Banking: a) 100% of 1.5 lakh post offices to come on the core banking system. b) Scheduled Commercial Banks to set up 75 Digital Banking Units (DBUs) in 75 districts.

Land Records Management: Unique Land Parcel Identification Number for IT-based management of land records.

Other initiatives: a) Centre for Processing Accelerated Corporate Exit (C-PACE) to be established for speedy winding-up of companies. b) An animation, visual effects, gaming, and comic (AVGC) promotion task force to be set up to realize the potential of the AVGC sector.

Export Promotion and AtmaNirbharta in Defence:

Sunrise Opportunities: Government contribution to be provided for R&D in Sunrise Opportunities like Artificial Intelligence, Geospatial Systems and Drones, Semiconductor and its eco-system, Space Economy, Genomics and Pharmaceuticals, Green Energy, and Clean Mobility Systems.

Energy Transition and Climate Action:

Financing of investments

GIFT-IFSC: a) World-class foreign universities and institutions to be allowed in the GIFT City. b) An International Arbitration Centre to be set up for timely settlement of disputes under international jurisprudence.

Mobilising Resources: a) Data Centres and Energy Storage Systems to be given infrastructure status. b) Sovereign Green Bonds to be issued for mobilizing resources for green infrastructure.

Central Bank Digital Currency: Introduction of Digital Rupee by the Reserve Bank of India starting 2022-23.

What are the Tax proposals mentioned in Union Budget 2022-23?

Direct Taxes

A Scheme for taxation of virtual digital assets: Specific tax regime for virtual digital assets was introduced. Any income from the transfer of any virtual digital asset is to be taxed at the rate of 30% in the hands of the recipient with 1% deducted at the source.

Tax relief to persons with disability.

Parity in National Pension Scheme Contribution: Tax deduction limit increased from 10% to 14% on employer’s contribution to the NPS account of State Government employees. This will bring them at par with central government employees.

Apart from that, tax incentives to IFSC, rationalization of Surcharge, Health and Education Cess and its income and profits will not be allowed as business expenditure, rationalizing TDS Provisions has also been done.

Indirect taxes

What is the core strategy adopted by the Union Budget 2022-23?

The budget chose an investment-led growth strategy that substantially ramps up capital expenditure, while largely holding back revenue expenditure (that is, expenditure to meet day-to-day expenses).

Capital expenditure allocations have increased from 1.65% of GDP in FY20 to 2.16% in FY21 to 2.6% in FY22 and are projected to rise to 2.9% in FY23. Capital spending allocation rose to the highest in 18 years.

According to different studies, one rupee spent towards capital expenditure can give returns between Rs 2.5 and Rs 4.8 (over periods ranging from 1-7 years).

This will a) Increase India’s GDP growth rate, which was decelerating since 2017-18; b) Reduce the unemployment rate which is touching a four-decade high, c)Address the K-shaped recovery, which resulted in significant scars for economically weaker sections. Many projects are local in nature — rural roads instead of a big highway — they may be more effective in providing relief to the weaker sections of the economy; d) Provide much higher returns to the overall GDP; e) Create new productive assets that boost future productivity.

New roads, ports etc will reinvigorate several other industries through forward and backward linkages e.g., infrastructure projects will support the cement and steel sectors while enhancing employment. This will increase private final consumption expenditure (PFCE), which is below 2018 levels so far.

In time, as tax revenues from new economic activity increase and as private sector investments become self-sustaining, the government will retreat from its leading role in investments, thus bringing down its borrowing requirements.

Other significant things in the Union Budget 2022-23

Apart from that, Budget 2022-23 has introduced a number of measures to reduce compliance burden, encourage voluntary compliance, reduce litigation, and improve the ease of doing business.

For many who feared that the government will totally ban cryptocurrencies, the tax of 30% came as a relief.

India’s dramatically increased IT and telecom allocations are an investment in its future. The rollout of 5G promises to create a foundation for next-generation technologies.

Along with an emphasis on semiconductor manufacturing announcements related to the introduction of a digital currency, the issuance of e-passports; IT-based land records etc. put faith in India’s technological capabilities. This will enable India to transition to a more digital economy.

In education, the need for bridging the digital divide has been echoed. The setting up of 200 TV stations, as well as digital universities, are important steps.

The need for more integrated urban planning in making the urban sector a true engine of growth has been echoed in the budget with the recommendation of the formation of a high-level committee.

What are the concerns associated with the Union Budget 2022-23?

The budget shows 1) Increasing protectionist trend and continued differentiation in import duties. Minute rate differences and taxing inputs at lower rates increase the effective rate of protection, adversely impact competitiveness and give rise to special interest groups lobbying for higher import duties, 2) The excessive protection and reservation given to MSMEs might prevent them from becoming bigger and more competitive to take advantage of the scale economy, 3) The government’s fiscal deficit (6.4%) was a cause of concern. In FY22, the government is Rs 1 trillion short of its disinvestment target and incurred capital expenditures to absorb some of Air India’s liability. But, the budget spent more for providing direct financial support to various sections of society. This will worsen the fiscal deficit further.

4) Issues with Capex push: Capital expenditure has long gestation periods and the expected benefits to the common people may take time to accrue. When all other engines of growth are struggling the investment cycle might not be sustainable. 5) The Government should have looked at putting more money in the hands of the people. For instance, the government missed out to introduce an urban version of MGNREGS and cutting the high excise duty on petrol and diesel. Several critics have argued that the Government should have spend more on the healthcare sector, given the high suffering of the people during the 2 years of Pandemic. 6) On the taxation side, there has not been any major giveaway that may have been expected.

What should be done to improve the Indian Economy?

Despite the hype regarding the Union Budget, almost 60% of the actual spending is at the State level. Hence, the States should implement the policies and undertake allocated spending.

The top priority for India now is the creation of jobs. Many have lost their jobs during the pandemic. Along with infrastructure, health and tourism, are the two other sectors that have huge employment generating potential. Hence the government has to work on these sectors too on top priority. Linking some PLI incentives to job creation would have been something worth trying.

The GST Council must now engage in more decisive action in broad banding, inverted duty structure and including excluded items as well as improving all-round compliance.

Apart from that, 1) Public outlay on health has remained somewhat static. The government has to increase the allocation to the health sector to reap compoundable benefits, 2)  Faster implementation of the delayed programme of the BharatNet Scheme for providing high-speed digital connectivity to all villages, 3) Innovative steps to garner private investment through guarantees and regulatory changes are important.

By and large, Budget 2022-23 is in the desired direction (focus on improving the supply side) in the given circumstances. It has also presented a 25-year blueprint. But the impact of the Budget on the economy and the implementation of the blueprint will depend on the efficiency with which the various proposals are implemented.