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The government’s
focus in the budget seems to be resting on enhancing health and well-being,
infrastructure development, inclusive development, energy transition and
climate action mandates as well as financing of investments. The most Significant
announcements include digital currency taxation implementation, Chip embedded e-passport
deployment and a slew of infrastructure projects. Alongside this, a scheme to
increase Edible oilseed Production increase, a ‘Make in India’ push for mobile
chargers and wearable electronics, imitation jewelry taxation increased,
polished diamond export tax reduction are some of the other major changes
announced. These are only a few of the major changes showcased in the budget.
In this article we will be highlighting some of the major changes to the budget
and their potential impact on the Indian economy.
Income Changes
While there are
a number of positive changes in the budget, one that sticks out like a sore
thumb is the lack of budgetary changes to the Income tax. With another wave of
Covid set to occur in 2022, taxpayers were looking for some Covid relief or
deference package to be included in the Budget. However, this is not the case
with the government not implementing any significant changes to the income tax.
Despite the income tax having no significant changes other than minor changes
to Exemptions, gifts and expenditures, the government is projected to witness a
10% increase in Tax revenue. However, tax payers have been allowed 2 years to
file their taxes. However, this was not all bad news for taxpayers. The Budget
did include a proposal to cut Excise Duty on Petrol and Diesel which is set to
cause a 15% drop on Excise Duty Collections for the government. The Government
has also simplified the E-Commerce exports of gems and jewelry with reduction
of duty to 5% on cut/polished diamonds and gemstones in order to drive local
business growth.
Budget Growth Estimation, 2012-2022
The major
changes from the government were focused on the services sector, especially the
much-affected tourism and hospitality. The Union Budget provides some relief
and medium to long term infrastructure measures to stressed tourism travel
& hospitality industry, but there was an immediate opportunity for more
direct intervention to support the highly stressed tourism travel and
hospitality companies and their employees. Alongside this, the government also
extended the 15% concessional tax on manufacturing companies till FY 2024. This
is a bid to ease CAPEX spending for these companies. The government expects a
27% fall in RBI Dividends for the year, a monetary value of Rs. 27,400 crore.
Dividends from public sector enterprises are also expected to fall by 13%, a
monetary value of Rs. 6,000 crore. Despite these drops, the government expects
the Budget Income to rise 92% in FY 2022 with another projected rise in FY 2023.
Expenditure
Changes
Coming to the expenditure, there has been a significant shift for FY 2022 in terms of focus areas. With Covid-19 slowing down, the government has increased emphasis on a shift back to urban development and Employment. The major change in line with this shifting focus is the 25% reduction in investment for the Mahatma Gandhi National Rural Employment Guarantee scheme primarily as a result of reduced government outlay post Covid-19 due to recovery of urban jobs for migrant workers. Apart from this, infrastructure development continues to be the primary investment area for the country. The biggest Gainer will be NHAI (National Highways Authority of India) which is projected to grow a whopping 106% to become second highest expenditure behind FCI Food Subsidy. Rising infrastructure development is a major focus area to stimulate the economy with National Highways to be expanded by 25000 km in FY 2023. The Capital Expenditure is expected to grow by 25% in FY 2023 in a bid to boost the economy. This is 2.2 times the CAPEX of FY 2020 showcasing the massive rise in investment post Covid-19.
Fiscal Deficit Trend, 2015-2022
The Government
has also focused on Welfare projects to ensure citizen improvement. Primarily
Jal Jeevan Mission and National Education Mission are set to see significant
rises by 28% and 33% respectively. Apart from this, Rs. 48,000 crore has been
allocated to PM Housing Scheme to implement affordable housing. These schemes
and projects are part of the government’s plan to complement macro growth in
2022 /2023 with micro all-inclusive welfare projects. A focus of the macro
growth has also been the push for Make in India projects. This includes
investment across sectors ranging from Agriculture, High Technology and
Defense. In particular there is set to be a push for local companies in the
defense sector with 68% of FY 2023 defense budget set for local companies only,
an increase from 58% in 2022 and continuing a growth trend in this area.
Focus on
Startup Company Investments
In line with the
push for Make in India, one of the key government focus areas in Budget 2022 is
the improvement in the startup environment. The Indian government is looking to
enhance startup company presence in India by increasing investment, providing
improved tax rebates as well as tax reduction. The primary focus has been the
improvement in investment. The finance minister showcased the principal
capability of government-backed Funds such as NIIF and SIDBI Fund. This
includes the scale capital provided by these funds and the exponential
investment from the same. The sectors in focus for these funds include Climate
Action, Deep-Tech, Digital Economy, Pharma and Agri-Tech. Through this, the
government will provide thematic funds with the government share being limited
to 20% and the rest comprising 80% of funds being managed by private fund
managers. In a bid to boost investment,
an expert committee is to be formed to examine and suggest appropriate measures
to scale venture capital and private equity investments with 20% investment
from Government. Another way the government is enhancing the startup investment
is by reducing the investment penalty for angel investors. Long term capital
gains for unlisted shares remain at 15% (from 37%). This is a bid to drive investment into
startups by reducing tax for angel investors from 28.5% to 23.9%. Finally, the
Tax Rebate on profits made for FY 2023 will help startups and newer companies
in their financial expansion. After a difficult Covid-19 period, these tax
rebates and investment improvement plans from the government are set to offer
startups a new hope as improved profitability driven by both consumer demand
and external investment will improve the startup atmosphere over the next few
years in India.
Green Energy
Transition
The government
has also showcased its focus on Green Energy Transition as part of its increase
shift to renewable energy and electric vehicles. The government included
various tax rebates and schemes with the primary goal of meeting its Clean
Energy transition as well as Electric Vehicle penetration targets. Alongside this, in line with the Make in India
policy, there has been a push to increase domestic production of renewable
energy equipment of Rs. 19,500 to be set aside for PLI scheme for Solar modules
with primary focus on boosting domestic solar power equipment as well as set up
of solar plants. The Government is also looking to enable MSMEs in the country to
produce non-cell solar module components like glass, ribbons, ethylene-vinyl
acetate sheet and others in a bid to reduce China’s monopoly and the solar PV
value chain. The government’s carbon footprint is another area of interest with
green bonds being utilized to finance projects to reduce the Government’s
Carbon intensity. These Green bonds alongside the setting up of clean
development institutions by the government showcases its growing desire to meet
or even surpass the Clean Energy Targets it has set forth. However offshore
wind and hydro power remain under emphasized in the budget with Solar In
particular witnessing a significant concentration based on policies in the
budget.
One major area
of this shift has been the focus on batteries and their capability as well as
deployment. There has been a significant emphasis given to ensure deployment of
battery-led energy storage systems for complementing the green energy
generation and decentralization of energy distribution. This is a bid to
encourage more off grid power generation as well as in particular microgrid
power generation at homes and enterprises. Alongside this, there have been
significant changes to the battery policy surrounding electric vehicles as
well. The major change has been the Introduction of battery swapping policy and
interoperability standards will drive the EV industry, especially for new
startups. This will encourage a
secondary market surrounding Electric vehicles through the recognition of
Battery/Energy as a service model which will create and drive new business models
in the market. However no changes to battery recycling policy or FAME scheme
have been outlined which could prove a minor hindrance. Other positives which
will encourage the Electric Vehicle transition include the substantial focus on
significantly enhancing the country’s Electric Vehicle Charging station
deployment.
Focus on
Digital India
2020 and 2021
has witnessed a significant shift towards digital spaces as a result of the
Covid-19 pandemic. In line to this digital shift, the government’s Budget 2022
has given significant emphasis to Digital India and launched various schemes
and policy implementations that will drive forth a new increasingly digitalized
Indian economy. One of the major digital initiatives is the Digital Health
program. Covid-19 has opened up the requirements for remote healthcare and the
implementation of Digital health programs and telemedicine are designed to
solve this need. National Health Mission is set to witness a 9% increase in
spending. Along with this there is an increased emphasis on digital healthcare
with an open platform for national digital health (digital company registry),
unique health identities, universal access to health facilities) and other
initiatives set to be implemented. A National Telemedicine program is also part
of the budget with the National Tele Mental Health program in rural areas to be
a focus area as well.
Alongside
healthcare, the financial sector has also witnessed significant implementation
of policies. 30% tax to be implemented on virtual digital assets. This can pave
the way for India’s changing stance on cryptocurrencies. Alongside the
implemented tax, the Digital Rupee guidelines set up are set to change the
landscape of cryptocurrency in the country. Potential implementation of Digital
Rupee (Central Bank Digital Currency/CBDC) based on blockchain to be
implemented by 2023 from the RBI. Apart from cryptocurrency, a push for digital
banking is set to be implemented with the establishment of 75 digital banking
units in 75 districts by scheduled commercial banks.
Finally, the
education sector has also been highlighted in terms of digital initiatives.
Firstly, The Budget FY23 has allocated Rs 1,04,278 crore for the education
sector—an increase of 11.86% compared to the revised 2021-22 gross allocation
of Rs 93,223 crore. This includes a number of digital and remote education
initiatives. Digital University will be established, and to be made in
different Indian languages, based on networked hub model to particularly
capture rural students. One Class, One TV channel will be expanded from 12 to
200 TV Channels to provide supplementary education in all regional languages
through the PM eVidya scheme, as a result of the Covid-19 pandemic led
educational provision issues. In terms of vocational training and skill
devleopment, the Digital Ecosystem for Skilling and Livelihood (the DESH-Stack
e-portal) will be launched with the prime focus being on online training for
employees to skill, reskill or upskill their capabilities. It will also provide
API-based trusted skill credentials, payment and discovery layers to find
relevant jobs and entrepreneurial opportunities. Also, 750 Virtual Labs in
Mathematics and science as well as 75 e-labs for skill development in a
simulated learning environment, will be set up in 2022-23. All these digital
initiatives are set to change the landscape of Indian ecosystem driven by
Covid-19 pandemic.
Focus on
Farming/Farmers
A major focus
area in the budget remains the Farming Community. A major change is the fact
that the FCI Food Subsidy and Decentralized Food Grain Procurement Subsidy to
fall 31% and 20% respectively. Despite reduction from these subsidies, there
are a significant number of policies that are positively designed for farmers.
A major policy is the Rs. 23700 crores which will be provided to farmers for
procurement of wheat and paddy. Alongside this, the budget has significant
focus on promotion of organic/natural chemical free farming. Alongside this, an
increased emphasis on oil seed and millet production has also been established.
Ministry Wise Budget Allocation, 2022-2023 (k Crores)
Agritech
startups in particular have seen a lot of insight and investment. There is focus
on Agritech startups, primarily in the drone and farming-as-a-service segments to
deliver the latest technology education to farmers and aid in implementation.
The implementation includes use of kisan drones which will be promoted for crop
assessment, digitization of land records, and spraying of insecticides and
nutrients. A fund with blended capital raised under co-investment model will be
facilitated through the NABARD to finance agritech startups and rural
enterprises relevant to farming. Startups supporting food producer organizations,
farm rental services and other technology such as IT-based support will be
eligible for funding under this scheme. These schemes alongside the policies to
investment in farming itself will significantly help farmers despite the Food
Subsidy declines in a post Covid-19 world.
Easing of Red
Tape
Apart from
investments, subsidies and schemes a focus area has been the reduction of red
tape in governmental regulations. There is significant focus on reducing
complexity of SEZ. The SEZ act is to be replaced with a new Act that will make
compliance and setting up of SEZs easier. Also, amendments have been made to the
IBC (Insolvency and Bankruptcy Code) to reduce complexity of cross border
insolvency.
The focus has
not just been on companies but citizens as well. For instance, a 2 year window
has been set up for citizens to file tax returns in a bid to boost compliance
by reducing the red tape surrounding taxes. There has been increased focus has
been provided on Digitalization of land records at national level to ease FDI
investment in real estate. This easing of red tape will lead to increased
investment for companies and also help citizens.
Conclusion
The Indian
Budget for 2022 and 2023 has been driven in particular by the after effects of
Covid-19 pandemic. There have been significant changes to the Expenditure and
Income sections that have seen some reversion to pre Covid investments.
However, a large majority of the budget does still take into account Covid-19
and the changes to the Indian economy as a result of this pandemic. One such
case is the increased focus on a Digital India. With Covid-19 resulting in more
and more citizens, students, companies and employees focusing on remote
everything, whether it is healthcare, education or work, the budget for 2022
and 2023 takes these factors into account and focuses on increased
digitalization and remote experiences which will help citizens in a post covid
world. Apart from this, a major area of concern in the budget has been the
shift to a Greener India. This includes investment, tax rebates and policies to
drive forward clean renewable energy and Electric Vehicle transitions. Finally,
as the country recovers from Covid-19 the government has looked to increase
investment into various sectors with a main goal to drive the Make in India
policy with a significant rise in investment for Indian companies across a
number of sectors. This forward-looking budget will help India significantly
recover economically and socially in a world that is recovering from the Covid-19
pandemic after effects.