Budget 2022 — Business

Budget 2022 which seeks to lay the blueprint for the next 25 years for growth for India has been widely recognized by the business community as a growth and infrastructure-focused budget that will put the country on the right trajectory. In terms of performance, the government has done well in collecting tax revenues, keeping spending tight, and is now taking steps towards long-term fiscal stability. The key areas of attention are future income and employment-generating capex. Rs 317,643 crore will be allocated to grants in aid, including MNREGA.

As far as expenditure is concerned, the government proposes to spend Rs 39,44,909 crore in 2022–23, which is 4.6% higher than the updated estimate of 2021–22. The receipts (excluding borrowings) in 2022–23 are estimated to be Rs 22,83,713 crore, an increase of 4.8% over the revised estimate of 2021–22. The expectation from tax collections is higher than last year, which is expected to come in from direct taxes, both on personal and corporate income.

The FM has estimated GDP growth of 9.27% which is among the highest in the world’s large economies. The nominal GDP growth rate has been estimated at 11.1%.

Revenue deficit in 2022–23 is estimated at 3.8% of GDP. The fiscal deficit in 2022–23 is targeted at 6.4% of GDP, which is lower than last year. And Interest expenditure at Rs 9,40,651 crore is estimated to be 43% of revenue receipts.

The budget has not relied on EBR (Extra Budgetary Resources) or loans from the National Small Savings Fund. As far as ministry allocation is concerned the highest percentage-wise increase is seen for the Ministry of Communications, Ministry of Road Transport and Highways, and Ministry of Jal Shakti.

The impact on different business sectors —

  1. Education: As per the budget, allotted spending for education stands at Rs 69,907.23 crore, of which Rs 59,819.37 crore comes from the Department of School Education and Literacy of the Union Ministry of Education. Also, there is a proposal to increase expenditure on children’s education and development in absolute terms. But there was a drop in the share as a percentage of the overall budget. On digital developments in the sector, there was welcome news. With the increase in hybrid mode of education a vision has been made to digitalize education for future generation and there has been a n aim to form a digital university which delivers e-content.
  2. Real-Estate: Announcement of investments providing clean drinking water and access to the housing via PM Awas Yojana were positive. The Rs.48,000 crore allocation for rural and urban schemes will give a thrust to affordable housing. The proposal to replace the Special Economic Zone Act with a legislation that would permit states to partner in creating enterprise and service hubs and the push for digitization of land records are also laudable. The budget has also proposed the rationalization of tax withholding provisions relating to purchase or rental of properties and including units of Real Estate Investment Trusts within the bonus stripping/ dividend provisions.
  3. Infrastructure: The replacement of the SEZ Act with the new legislation will help make states partners in creating development hubs. Apart from the large capex investments, the reforms in customs administration will aid SEZs in withstanding disruptions in the global supply chain. The Gati Shakti initiative highlights the importance of quality multi-modal transport in achieving overall cost competitiveness. With global studies pegging India’s average logistics costs at around 14% of GDP as against 8–9% for advanced economies, this is clearly a factor which needs to be addressed for attracting quality anchor investors across sectors. Infrastructure financing has also been mainstreamed, with particular focus on environment and sustainability, as evident from the announcement around green bonds, focus of National Infrastructure and Investment Fund (NIIF) and National Small Industries Corporation (NSIC) Fund of funds on the renewables sector, etc. For the rural economy and social sector in particular, the budget refers to blended finance as an option. This would again be linked to the Social Stock Exchange, an initiative announced earlier. (Deloitte)
  4. Auto: The EV segment will benefit from the announcements. The battery-swapping announcement is a welcome one. This policy is also expected to encourage private sector to develop sustainable and innovative business models for ‘Battery or Energy as a Service’. There are also plans for EV penetration in public transport and creating special mobility zones for EVs. There is also a proposal to reduce customs duty for Nickel Ore and Concentrates from 5 percent to nil, ferro nickel from 15 percent to 2.5 percent, nickel oxide and hydroxide from 10 percent to free. Nickel Manganese Cobalt is a key chemistry used in lithium-ion batteries, which are used in EVs. Given that nickel alloys are primarily imported, the reduction in customs duty will aid indigenous EV battery manufacturers in reducing production costs. Further, motors and controllers are critical EV components with moderate levels of localization currently. Reduction in customs duty from 10 percent to 7.5 percent in motor parts, will help also reduce the cost of EVs. Overall, the Union Budget 2022–23 has been favorable for the EV space and will favor deeper penetration of green mobility over the medium term.
  5. START-UPS: Budget 2022 was high on the development and inclusiveness agenda of the government, with significant allocations on infrastructure, healthcare, education, fin-tech, agriculture, etc. Initiatives around tele-mental health, digital university set-up for supporting supplementary education, highways, cargo terminal, kisan drones, etc., would all go a long way in supporting employability and employment within India. Similarly, policies aimed at the faster adoption of electric vehicles and a committee set up for promoting private equity/venture capital ecosystem would be beneficial in the longer term.

Taxes —

  1. Direct Tax: In this area, the government’s attention is on promoting investments and reducing litigation. A welcome move for manufacturing firms is that the 15% corporate tax rate for manufacturing under Section 115BAB got extended by one year to 31 March 2024. A positive announcement for startups is that the last for the incorporation of eligible start-ups for claiming deduction under section 80-IAC extended by one year to 31 March 2023. Surcharge on all long-term capital gains and AOPs to be reduced from 37% to 15%. One amendment that companies could find challenging is that as far as dividend from foreign companies goes, the concessional rate of 15% is to be phased out from FY2022–23.
  2. Indirect Tax — Customs Proposals: Under Atmanirbhar Bharat, a PMP announced for boosting domestic manufacturing of smart devices (smart watches, smart hearable devices, and smart meters). Also, Costumes Duty exemptions on capital goods being gradually withdrawn. Concessional rates for project imports will be phased out, and the duty rate standardized to 7.5%. An announcement that has come in the are of dispute resolutions, where advance rulings are to valid for 3 years or till there has been change in laws.

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