An unlikely budget in an election year where five states are going to polls
Overall a disappointing budget sans major announcements
Budget Analysis By TN Ashok
New Delhi, Feb 01 : In an election year where five major states are going to polls – UP, Punjab, Uttarakhand, one can expected a block buster budget that would create more jobs, make life easier for the middle class and uplift the poor. Instead Finance Minister Ms Nirmala Sitharaman surprised many by slashing on subsidies on many sectors which would lead to spiraling costs and prices besides raising the inflation rate.
The budget was actually an exercise to tackle ground realities facing the government. Elections can be won on different kind of political approach but the economy needed to be healed immediately even as the economy was recovering from the combined assault of lock downs, shut downs, loss of manufacturing , loss of jobs , and has virtually gambled on escalating infrastructure spend to provide jobs.
Lets take a look at the budget highlights and see they go towards north or south. The government has tried to open one door for all the ills of the economy instead of opening door by door to resolve the problems mentioned above. The most surprising thing is that divestment targets has increased by just a miniscule Rs 200 crore . From Rs 2, 61,000 crore to Rs Rs 2,61,200 crore.
The FM announced last year that the government was unveiling an National Monetization Plan (NMP) to raise Rs 6,00,000 lakh crore to up the ante on infrastructure, divestment of govt owned psu’s, no major privatization efforts , nothing major for the private sector to kick start the economy.
The MNREGA allocation has been scaled down at a time when it was supposed to help in job creation , but the government argument was that when there is no demand under this category why raise the allocation, when there is , we will raise the aollocation, said a union minister Piyush Goyal.
Lets have a closer look at the budget : Since the budget is actually driven by the head of the state , which is the prime minister , Narendra modi, lets see what he has to say first before looking at economists, opposition parties feel about the budget.
The Prime Minister congratulated the Finance Minister saying the “Budget this year has come with a new confidence of development amidst the once-in-a-centurry calamity”( reference to covid and its impact on the economy_
“This Budget will create new opportunities for the common people along with providing strength to the economy, the Prime Minister said adding ““Budget is full of opportunities for more Infrastructure, more Investment, more growth, and more jobs.” “Welfare of the poor is one of the most important aspect of this budget”
“Budget’s provisions aim to make agriculture lucrative and full of new opportunities”
The Prime Minister said that the quest for modernity and technology in every sphere of life through steps such as drones for farmers, Vande Bharat Trains, digital currency, 5 G services, national digital health ecosystem will hugely benefit our youth, middle class, poor, Dalit and backward classes.
Budget’s provisions aim to make agriculture lucrative and full of new opportunities. Measures like special fund for encouraging new agriculture startups and package for food processing industry, will help in increasing income of farmers. More than 2.25 lakh crore rupees are being transferred in the account of the farmers through MSP purchase, the Prime Minister said.
Along with record increase in the credit guarantee, many schemes have been announced in the Budget. “India’s MSME sector will be greatly benefitted by the reservation of 68 per cent of the Defence Capital Budget for the domestic industry. 7.5 lakh crore rupees worth of public investment will give new push to the economy and create new opportunities for small and other industries”, he said.
The Union Budget, seeks to complement macro-economic level growth with a focus on micro-economic level all-inclusive welfare. The Union Minister for Finance & Corporate Affairs, Smt Nirmala Sitharaman tabled the Union Budget 2022-23 in Parliament today which gambles largely on infrastructure spend m just one door to growth.
The key highlights of the budget are : India’s economic growth estimated at 9.2% to be the highest among all large economies. If you look at the economic survey it has estimated GDP growth at a much lower figure in the near future. The figure here is for 2025-26. Nearer projections are just about 6% for FY 2021-22, and over 6.9 % in the next FY 2022-23. The government is not resorting to printing extra currency notes , that is deficit financing , to achieve a consumption led growth , which is what most economies in the Europe and the USA have done. There are dangers associated with it like inflation rate spiralling.
60 lakh new jobs to be created under the productivity linked incentive scheme in 14 sectors.
- PLI Schemes have the potential to create an additional production of Rs 30 lakh crore.
- Entering Amrit Kaal, the 25 year long lead up to India @100, the budget provides impetus for growth along four priorities:
- PM GatiShakti
- Inclusive Development
- Productivity Enhancement & Investment, Sunrise opportunities, Energy Transition, and Climate Action.
- Financing of investments
PM GatiShakti
- The seven engines that drive PM GatiShakti are Roads, Railways, Airports, Ports, Mass Transport, Waterways and Logistics Infrastructure. The argument that the middle class with a good family spend can enjoy good roads and highways and airports for travel is a fallacious argument. It is no answer to solving their immediate problems , that’s lack of cash on hands to spend , due to joblessness. Creation of jobs in one sector is not going to solve the basic problems of lack of growth, loss in manufacturing, lack of jobs, unemployment and joblessness all caused by covid impact through lockdowns, shut downs, and curfews.But the government has made an earnest effort to lift the MSME sector raising the allocation , which is the hardest hit sector of the economy by meltdown in the global economy and covid collateral damage.
PM GatiShkati National Master Plan
This plan is a major gamble that if implemented it will tackle all the ills of the economy through just infrastructure growth. No , monies have also to come from divestment of government equity in state owned entities. In the last year, nothing has much progressed on the National Monetisation Plan that had an ambitious target of raising
Rs 6 lakh crore. There was no progress on the privatization of the countrys largest insurance company , the LIC.
Road Transport: No doubt the Modi government has achieved a lot on this sector , much better report card to show than previous governments. The schemes are laudable as unveiled in the budget.
- National Highways Network to be expanded by 25000 Km in 2022-23.
- Rs 20000 Crore to be mobilized for National Highways Network expansion.
Multimodal Logistics Parks
- Contracts to be awarded through PPP mode in 2022-23 for implementation of Multimodal Logistics Parks at four locations.
Railways
- One Station One Product concept to help local businesses & supply chains.
- 2000 Km of railway network to be brought under Kavach, the indigenous world class technology and capacity augmentation in 2022-23.
- 400 new generation Vande Bharat Trains to be manufactured during the next three years.
- 100 PM GatiShakti Cargo terminals for multimodal logistics to be developed during the next three years.
Inclusive Development
Agriculture
- Rs. 2.37 lakh crore direct payment to 1.63 crore farmers for procurement of wheat and paddy.
- Chemical free Natural farming to be promoted throughout the county. Initial focus is on farmer’s lands in 5 Km wide corridors along river Ganga.
- NABARD to facilitate fund with blended capital to finance startups for agriculture & rural enterprise.
- ‘Kisan Drones’ for crop assessment, digitization of land records, spraying of insecticides and nutrients.
Ken Betwa project
- 1400 crore outlay for implementation of the Ken – Betwa link project.
- 9.08 lakh hectares of farmers’ lands to receive irrigation benefits by Ken-Betwa link project.
MSME
- Udyam, e-shram, NCS and ASEEM portals to be interlinked.
- 130 lakh MSMEs provided additional credit under Emergency Credit Linked Guarantee Scheme (ECLGS)
- ECLGS to be extended up to March 2023.
- Guarantee cover under ECLGS to be expanded by Rs 50000 Crore to total cover of Rs 5 Lakh Crore.
- Rs 2 lakh Crore additional credit for Micro and Small Enterprises to be facilitated under the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE).
- Raising and Accelerating MSME performance (RAMP) programme with outlay of Rs 6000 Crore to be rolled out.
Skill Development
- 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.
· Startups will be promoted to facilitate ‘Drone Shakti’ and for Drone-As-A-Service (DrAAS).
Education
- ‘One class-One TV channel’ programme of PM eVIDYA to be expanded to 200 TV channels.
· Virtual labs and skilling e-labs to be set up to promote critical thinking skills and simulated learning environment.
· High-quality e-content will be developed for delivery through Digital Teachers.
· Digital University for world-class quality universal education with personalised learning experience to be established.
But the outlay on this sector has not been raised in proportion to the needs of the country’s demands. Educated youth form the bulk of the demographics of the country for nation development.
Health
- An open platform for National Digital Health Ecosystem to be rolled out.
· ‘National Tele Mental Health Programme’ for quality mental health counselling and care services to be launched.
- A network of 23 tele-mental health centres of excellence will be set up, with NIMHANS being the nodal centre and International Institute of Information Technology-Bangalore (IIITB) providing technology support.
Sounds good, but after the devastation caused by the covid on the health care system, the allocation provided for health care is nowhere near meeting future challenges as newer variations of covid 19 develop from Delta, to Omicron and the impending NeoCov mutations.
Other highlights of the budget are , worthy of mention are :
Housing for All: Rs. 48,000 crore allocated for completion of 80 lakh houses in 2022-23 under PM Awas Yojana.
Vibrant Villages Programme
- Vibrant Villages Programme for development of Border villages with sparse population, limited connectivity and infrastructure on the northern border.
Banking
- 100 per cent of 1.5 lakh post offices to come on the core banking system.
- Scheduled Commercial Banks to set up 75 Digital Banking Units (DBUs) in 75 districts.
e-Passport
- e-Passports with embedded chip and futuristic technology to be rolled out.
Urban Planning
- Modernization of building byelaws, Town Planning Schemes (TPS), and Transit Oriented Development (TOD) will be implemented.
- Battery swapping policy to be brought out for setting up charging stations at scale in urban areas.
Land Records Management
- Unique Land Parcel Identification Number for IT-based management of land records.
Accelerated Corporate Exit
- Centre for Processing Accelerated Corporate Exit (C-PACE) to be established for speedy winding-up of companies.
AVGC Promotion Task Force
- An animation, visual effects, gaming, and comic (AVGC) promotion task force to be set-up to realize the potential of this sector.
Telecom Sector
- Scheme for design-led manufacturing to be launched to build a strong ecosystem for 5G as part of the Production Linked Incentive Scheme.
Export Promotion
- Special Economic Zones Act to be replaced with a new legislation to enable States to become partners in ‘Development of Enterprise and Service Hubs’.
AtmaNirbharta in Defence:
- 68% of capital procurement budget earmarked for domestic industry in 2022-23, up from 58% in 2021-22.
· Defence R&D to be opened up for industry, startups and academia with 25% of defence R&D budget earmarked.
· Independent nodal umbrella body to be set up for meeting testing and certification requirements.
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:
- Additional allocation of Rs. 19,500 crore for Production Linked Incentive for manufacture of high efficiency solar modules to meet the goal of 280 GW of installed solar power by 2030.
· Five to seven per cent biomass pellets to be co-fired in thermal power plants:
·
- CO2 savings of 38 MMT annually,
- Extra income to farmers and job opportunities to locals,
- Help avoid stubble burning in agriculture fields.
· Four pilot projects to be set up for coal gasification and conversion of coal into chemicals for the industry
· Financial support to farmers belonging to Scheduled Castes and Scheduled Tribes, who want to take up agro-forestry.
Public Capital Investment:
- Public investment to continue to pump-prime private investment and demand in 2022-23.
· Outlay for capital expenditure stepped up sharply by 35.4% to Rs. 7.50 lakh crore in 2022-23 from Rs. 5.54 lakh crore in the current year.
· Outlay in 2022-23 to be 2.9% of GDP.
- ‘Effective Capital Expenditure’ of Central Government estimated at Rs. 10.68 lakh crore in 2022-23, which is about 4.1% of GDP.
GIFT-IFSC
- World-class foreign universities and institutions to be allowed in the GIFT City.
- An International Arbitration Centre to be set up for timely settlement of disputes under international jurisprudence.
Mobilising Resources
- Data Centres and Energy Storage Systems to be given infrastructure status.
· Venture Capital and Private Equity invested more than Rs. 5.5 lakh crore last year facilitating one of the largest start-up and growth ecosystem. Measures to be taken to help scale up this investment.
· Blended funds to be promoted for sunrise sectors.
· Sovereign Green Bonds to be issued for mobilizing resources for green infrastructure.
Digital Rupee
- Introduction of Digital Rupee by the Reserve Bank of India starting 2022-23.
Providing Greater Fiscal Space to States
- Enhanced outlay for ‘Scheme for Financial Assistance to States for Capital Investment’:
- From Rs. 10,000 crore in Budget Estimates to Rs. 15,000 crore in Revised Estimates for current year
· Allocation of Rs. 1 lakh crore in 2022-23 to assist the states in catalysing overall investments in the economy: fifty-year interest free loans, over and above normal borrowings
- In 2022-23, States will be allowed a fiscal deficit of 4% of GSDP, of which 0.5% will be tied to power sector reforms
Fiscal Management
- Budget Estimates 2021-22: Rs. 34.83 lakh crore
· Revised Estimates 2021-22: Rs. 37.70 lakh crore
· Total expenditure in 2022-23 estimated at Rs. 39.45 lakh crore
· Total receipts other than borrowings in 2022-23 estimated at Rs. 22.84 lakh crore
· Fiscal deficit in current year: 6.9% of GDP (against 6.8% in Budget Estimates)
- Fiscal deficit in 2022-23 estimated at 6.4% of GDP
PART B
DIRECT TAXES
To take forward the policy of stable and predictable tax regime:
- Vision to establish a trustworthy tax regime.
- To further simplify tax system and reduce litigation.
Introducing new ‘Updated return’
- Provision to file an Updated Return on payment of additional tax.
- Will enable the assessee to declare income missed out earlier.
- Can be filed within two years from the end of the relevant assessment year.
Cooperative societies
- Alternate Minimum Tax paid by cooperatives brought down from 18.5 per cent to 15 per cent.
- To provide a level playing field between cooperative societies and companies.
- Surcharge on cooperative societies reduced from 12 per cent to 7 per cent for those having total income of more than Rs 1 crore and up to Rs 10 crores.
Tax relief to persons with disability
- Payment of annuity and lump sum amount from insurance scheme to be allowed to differently abled dependent during the lifetime of parents/guardians, i.e., on parents/ guardian attaining the age of 60 years.
Parity in National Pension Scheme Contribution
- Tax deduction limit increased from 10 per cent to 14 per cent on employer’s contribution to the NPS account of State Government employees.
- Brings them at par with central government employees.
- Would help in enhancing social security benefits.
Incentives for Start-ups
- Period of incorporation extended by one year, up to 31.03.2023 for eligible start-ups to avail tax benefit.
- Previously the period of incorporation valid up to 31.03.2022.
Incentives under concessional tax regime
- Last date for commencement of manufacturing or production under section 115BAB extended by one year i.e. from 31st March, 2023 to 31st March, 2024.
Scheme for taxation of virtual digital assets
- Specific tax regime for virtual digital assets introduced.
- Any income from transfer of any virtual digital asset to be taxed at the rate of 30 per cent.
- No deduction in respect of any expenditure or allowance to be allowed while computing such income except cost of acquisition.
- Loss from transfer of virtual digital asset cannot be set off against any other income.
- To capture the transaction details, TDS to be provided on payment made in relation to transfer of virtual digital asset at the rate of 1 per cent of such consideration above a monetary threshold.
- Gift of virtual digital asset also to be taxed in the hands of the recipient.
Litigation Management
- In cases where question of law is identical to the one pending in High Court or Supreme Court, the filing of appeal by the department shall be deferred till such question of law is decided by the court.
- To greatly help in reducing repeated litigation between taxpayers and the department.
Tax incentives to IFSC
- Subject to specified conditions, the following to be exempt from tax
- Income of a non-resident from offshore derivative instruments.
- Income from over the counter derivatives issued by an offshore banking unit.
- Income from royalty and interest on account of lease of ship.
- Income received from portfolio management services in IFSC.
Rationalization of Surcharge
- Surcharge on AOPs (consortium formed to execute a contract) capped at 15 per cent.
- Done to reduce the disparity in surcharge between individual companies and AOPs.
- Surcharge on long term capital gains arising on transfer of any type of assets capped at 15 per cent.
- To give a boost to the start up community.
Health and Education Cess
- Any surcharge or cess on income and profits not allowable as business expenditure.
Deterrence against tax-evasion
- No set off, of any loss to be allowed against undisclosed income detected during search and survey operations.
Rationalizing TDS Provisions
- Benefits passed on to agents as business promotion strategy taxable in hands of agents.
- Tax deduction provided to person giving benefits, if the aggregate value of such benefits exceeds Rs 20,000 during the financial year.