Decoding Union Budget 2022–23
Owing to the rise of India’s digital infra, the Buzz around union budget has been higher than ever, but what’s exactly a nation’s budget?
The union budget is the annual financial report of India as a country, i.e. It’s the Govt of India’s revenue and expenditure statement for the end of a particular, fiscal year, which runs from Apr 1 to Mar 31, while providing estimates regarding the capital requirements for the following year.
In this article, we’ll briefly look at Budget 2022–23 and try to understand why some sectors like agriculture witnessed a subsidy cut while also understanding the implications of high fiscal deficit, but before we dwell further, here’s a quick rundown :
- As a consequence of the base effect, India’s GDP growth is estimated at 9.2% in the current year.
- Any income on transfer of any virtual asset is to be taxed at 30% with an additional TDS of 1%.
- Note that there has been no mention of ‘capital gains tax’ here, just ‘Income’.
- Digital Rupee to be issued by RBI to promote efficient and cheaper currency management.
- ‘Sovereign Green bonds’ to be issued for mobilizing resources towards green infrastructure, ‘Battery swapping policy’ to be brought out with the introduction of ‘Interoperability standards’.
- Gross GST collection at ₹1.41 lakh crore for Jan 22 (highest since inception) may signify rapid economic recovery post covid 19.
- The disinvestment targets have been set at a modest ₹65,000 crore, a big step down from FY 21–22.
- No changes in Income tax slabs for individuals may come as a bummer considering the high inflation outlook.
- Emergency credit line guarantee for MSMEs extended till march ’23 with an increase in cover from ₹50,000 Cr to ₹5 Lakh crore.
- Capex outlay stepped to ₹7.5 lakh crore (2.9% of GDP), a sharp increase of 35.4% from the existing ₹5.54 lakh crore in FY 2021–22.
- Centre’s gross borrowings estimated at ₹14.95 lakh crore owing to the planned 6.4% fiscal deficit comes as a shock to the interest rate market and may risk sovereign grade degradation.
- Public investment in modern infra to be led by PM Gati Shakti for India’s sprint in the so-called Amrit Kaal.
- PLI schemes are to be continued with an additional emphasis on wearable tech.
Public Welfares Systems
PM Gati Shakti, the poster child of the Budget 2022–23, aims at improving the public infrastructure, including but not limited to over 25,000 km of highways construction, national ropeway program under PPP mode, PM Gram Sadak yojana, digital inclusion of villages with fibre optic network, etc. It also promises an open-source logistics tracking dashboard that aims at improving logistical efficiency.
Clinching on the success of the nal se Jal scheme, a further ₹60,000 crore have been allocated to provide tap water to over 3.8 crore households in 2022–23.
An additional allocation of ₹19,500 crores would be made to the PLI for the manufacturing of high-efficiency solar modules in the hope of achieving 280 GW of solar power by 2030.
Reforms regarding IT automation of administration in SEZ units would be implemented by Sep 30, 2022, in the hope of increasing ease of doing business, yet the risk-based checks mentioned by the FM await further clarification.
On the trail to combat land mafia and improving public repositories, States would be encouraged to adopt unique Land parcel identification numbers to facilitate IT-based management of land records.
Healthcare
Despite the covid 19 tragedy, the healthcare budget witnessed a modest growth of ~7.5% as compared to the previous year.
Although the National Digital health ecosystem, which aims at easing access to information regarding healthcare providers, facilities, treatment, has become the centerpiece of the debate yet, we must not forget to mention that probably for the first time; Mental health has found its place in the budget under the National Tele Mental Health program under which a network of 23 centers of excellence would be launched with the guidance of NIMHANS, Bengaluru.
Agriculture
The budget remained relatively dormant concerning agriculture, as India struggles with its socialist policies of MSP and bad loans.
Although the Food and fertilizer subsidies have been slashed by over 25% each, it must be highlighted that in 2021–22, government spending on these subsidies was higher than projected in that year’s budget estimates, as the government had to step up support for the people, in the form of free food grains and fertilizer subsidies, in the face of the Covid-19 pandemic.
Higher commodity inflation in farm chemical inputs, leading to shortages, was another factor that pushed the government to increase fertilizer subsidies more than once last year. Hence, spending on the fertilizer subsidy in FY 2021–22 saw a whopping increase of more than 76 per cent from the original Budget allocation to the revised estimate.
However, the new budgetary allocation cut means that government expenditure on subsidies for crucial agricultural chemical inputs such as urea, diammonium phosphate and potash is likely to decline in the coming year.
Education
In the hope of mitigating the damage caused by the pandemic, the education budget witnessed an increase of 23% from ₹84,219 crore to ₹104,278 crores. Centre plans to increase the educational telecast under PM e-Vidya from existing 12 to up to 200+ TV channels to provide supplementary education in regional languages.
Further up to Five existing Academic institutions would be designated as ‘centers of excellence and allocated an endowment fund of ₹250 crores each.
Addressing fiscal deficit
Other than the taxation of digital assets, this is where experts across the board are divided.
Fiscal deficit is the difference between what a govt earns and what it spends during a given year expressed as a percentage of GDP. The revised fiscal deficit in 2021–2022 stands at 6.9% as opposed to the budgeted 6.8% despite the revised govt expenditure being ₹37.10 trillion, which is around 8.2% higher than the budgeted ₹34.83 trillion, this has primarily been accredited to the surging tax collection which stands at ₹25.16 trillion as opposed to the budgeted ₹22.17 trillion.
Now here comes the dicey part, the budget proposes a relatively high fiscal deficit of 6.4%, which, although a reduction from 6.9%, remains significant considering that the largest purchasers of sovereign paper, i.e. RBI, is already overstocked.
It is expected that the 10 yr bond yield will hit 7% in the coming months, which implies government would have to shell more of it’s earning for interest payments.
Here we’d like to mention that interest payments take the most significant chunk out of all the govt expenditures (~20% of GDP).
This debt-fueled spending has raised concerns over the risk of sovereign rating downgrade from the existing BBB- to junk status by the officials at Fitch.
Sovereign rating could be understood as a parameter which assesses the credibility of a sovereign state to pay back it’s liabilities.
Digital Asset
Finally, we address the elephant in the room, which has both the digital asset speculators as well as exchanges on their heels; any gains on the transfer of virtual assets would be taxed at 30%.
However, it’s worth mentioning that we’re still unclear whether the loss from such asset could be used to offset against any other income for tax exemptions; nonetheless, it seems as a nudge by the finance officials to push the general populous towards other less risky assets.
In addition to this, the RBI itself would be launching Digital Rupee (name subject to change) based on blockchain and another related tech to facilitate the transaction efficiency, though little has been said whether it would also be taxed at 30% or not.
The silver lining remains that taxation of virtual digital currency has driven away concerns over the transactions of virtual currencies being banned in India owing to the introduction of the Cryptocurrency and Regulation of Official Digital Asset Currency Bill, 2021. However, the taxation rate introduced seems to be a deterrent to the interest of the investors.
That was our take around the budget buzz :)
