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.
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.
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.
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.