Delivering on the promise of introducing a series of growth-oriented and significant reform initiatives, the Union Budget 2022-23 laid down the roadmap for establishing India as a global force to reckon with as it turns 100 in the year 2047. With a view to provide further fillip to the investment sentiment, the focus was on the critical areas of PM Gati Shakti, inclusive development, productivity enhancement, sunrise opportunities, energy transition and climate action, and financing of investments.
The measures announced under these domains are prudent and aimed at rejuvenating government spending towards infrastructure expansion, sustainability, agriculture and digitisation. The high public expenditure would crowd in private investments and the infrastructure program is likely to catalyse connectivity for encouraging entrepreneurship and jobs. It, therefore, ticked all the right boxes that would strengthen the path to economic growth and development while catering to all sections of society.
The Budget pursued fiscal consolidation at a measured pace. The fiscal deficit for FY2022 settled at 6.9% and FY2023’s fiscal deficit was taken to 6.4%. At the state level, a fiscal deficit of 4% was permitted, which will prove to be instrumental in promoting growth at the sub-national level by way of additional spending. The government also plans to provide assistance of `1 lakh crore over and above that at the state level, which will also be beneficial.
Recognising the need for giving infrastructure investments a renewed push, the sector has received the key priority in the Budget in the form of several important announcements such as conducting 5G auctions in 2022, including the scheme for design-led manufacturing for 5G as part of Production Linked Incentive (PLI) Scheme and allocating funds for affordable housing in 2022–23.
The government has announced a sharp jump of 35.4% in capital expenditure from Rs 5.54 lakh crore in the current year. This reform, expected to provide public spending the much-needed lead, is in line with our recommendation of incentivising public investment in housing, construction and real estate.
We had advocated for providing support for commercialisation of new technologies for the transition to low/zero carbon pathways and for demand creation of such technologies. The Budget provided significant policy attention to clean energy transition, which will contribute towards the climate change targets. This sector is being touted as the core of the country’s growth over the next 25 years. Major funds are being allocated towards renewable energy, energy efficiency, electric mobility and green bonds. Four pilot projects were announced for the conversion of coal to energy along with an additional allocation of Rs 19,500 crore to facilitate domestic manufacturing to boost 280 gigawatts of installed solar capacity by 2030. The allocation to the PLI for manufacturing high-efficiency modules for polysilicon will also boost India’s solar capacity.
Another major focus area of the Budget was healthcare, which encompassed opening a platform for the National Digital Health Ecosystem that will consist of digital registries of health providers and establishments, a unique health identity and universal access to health facilities. In a progressive move, the government recognised that the pandemic has increased mental health problems in citizens of all ages across the country and announced the introduction of the National Tele-Mental Health programme.
On the taxation front, landmark reforms include making the customs administration in the Special Economic Zones fully IT driven, providing for phasing out of concessional rates in capital goods and project imports gradually and applying a moderate tariff of 7.5%. Further, the Budget proposes that customs duty rates will be calibrated to provide a graded structure to facilitate domestic electronics manufacturing.
To promote the establishment of new businesses, eligible start-ups set up before 31 March 2022 have been provided a tax incentive for three consecutive years out of 10 from incorporation. Further, in an effort to establish a globally competitive business environment for certain domestic companies, a concessional tax regime of 15% was introduced by the government for newly incorporated domestic manufacturing firms. Taking cognisance of the evolving fiscal sector, the Budget provides that any income from transfer of any virtual digital asset shall be taxed at the rate of 30%. No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition.
While the aforementioned sectoral reforms are set to boost the investor sentiment, it is noteworthy that the Budget laid great emphasis on the very core of all reform measures, that is, introducing structural reforms to promote ease of doing business. Some of these measures for enhancement of business climate include focus on standardisation and removal of overlapping compliances, crowdsourcing of suggestions, enhancing scope of the PARIVESH single window portal for green clearances and setting up of the Centre for Processing Accelerated Corporate Exit for facilitating and speeding up voluntary winding up of companies.
In sum, the Union Budget 2022-23 represents the commitment of the government to propel India onto a higher trajectory of economic growth by following a future-focused process to make post-pandemic recovery more robust and equitable. The innovative new initiatives outlined shall encourage the entrepreneurial spirit and improve the investment climate, thereby working towards achieving the vision of establishing India as a developed nation in 2047.
The article first appeared in Indian Express on 2nd February 2022.