The writer-economist, Satyendra Nayak, emphasises on all the important aspects of the Budget for the year 2022-23
The Central Government Budget is one of the most important and most awaited events in the country every year, due to the perspective on growth and policy for the unfolding year. The Budget is nearly one fifth of the economy, and hence its size and direction has a significant impact in shaping economic activities. Its taxation policy aims to collect revenue optimally without discouraging productive capacity of the economy. The expenditure budget intends to allocate resources for efficient administration and vital sectors like education, health, defense, power, water and irrigation and other industrial and social infrastructure to promote growth in agriculture, industries, services and household sectors.
Post covid, the Indian economy has shown remarkable resilience and smart recovery from the severe negative impact which the pandemic brought. India registered record and globally highest GDP growth of 9.4% in 2021 against the decline of 8% in the earlier year. The Budget is targeting 8-8.5% GDP growth in 2022-23, again ranking India as the world’s fastest growing economy. IMF forecasts higher growth at 9%. With the buoyancy in agriculture, and sharp double digit growth in manufacturing and services in quick response to large pent up consumer demand, the economy is poised to move into sustainable high growth trajectory. High corporate earnings growth, and rising savings and deposit growth in banking system bodes well for growth potential of the economy. Given economic potential of natural resources, skilled and unskilled labour supply and available financial resources, if the private investment and bank credit growth accelerates, the economy would surpass 10% growth rate. This year’s Budget aims to do exactly that; to kick start private investment by giving a big boost to Government spending on infrastructure of the economy.
Under the most compelling and unprecedented circumstances and pressures on the Government finances and resources, the Government Budget deficit had reached the record high of 9.3% of GDP in 2020-21, when the pandemic had caused sharp and the worst economic deceleration of 9% in the economy. With the record economic recovery, the Budget deficit in 2021-22 is down to 6.9%. This marks as the sharpest fiscal consolidation in the budgetary history of India. The 2022-23 budget is aiming to spend Rs 39.45 lakh crores; with a lower deficit of 6.4% of GDP.
The key highlights of Union Budget 2022
- Infrastructure Capex to increase by 36.5% to Rs 7.5 lakh crores.
- PM Gati Shakti National Master Plan to integrate roads, railways, airports, ports, mass transport, waterways, logistic infrastructure for ensuring effective multi-nodal connectivity.
- Under PM Awas Yojana 80 lakh houses to be built at the cost of Rs 48,000 crores.
- Production Linked Incentive scheme in 14 sectors to create 60 new lakh jobs.
- Emergency Credit Line Guarantee scheme limit for SMES raised to Rs 500,000 with allocation of Rs 50,000 crores to tourism and hospitality sector badly affected by the pandemic.
- National Highways network to be expanded by 25,000 km.
- Promoting chemical free River Ganga.
- PM eVidya to be expanded with setting up of world class Digital University.
- 3.8 crore households to be provided water with allocation of Rs 60,000 crores.
- Introducing Digital Rupee.
No Sops for Taxpayers in Difficult Fiscal Times
This is not a populist budget despite the forthcoming election. In every budget the Finance Minister gives some relief to the individual tax payers in the form of several exemptions, increase in taxable limit, lowering the tax rates. In the light of the difficult fiscal position, the Government has refrained from giving any relief to the individual tax payers. Neither is there any change in the corporate taxes and indirect taxes. Although this goes in line with policy to have stable tax structure, the compulsions of keeping the revenue intact has forced the Government to maintain status quo on the Tax front. The only change is the capping of surcharge on capital gains at 15%.
Government Capex is the Trigger
This year’s Budget is a sharp departure from the Government’s earlier Budgets. Despite the forthcoming elections, the Budget has refrained from giving sops to tax payers and doles to masses to boost consumption. In the last few budgets, the Government has consistently introduced several welfare measures and schemes, specifically directed to the population at the bottom of the pyramid, to increase their consumption and living standards. We have seen the result of such consumption boost that has driven the record growth last year. However, the corporate investment is still lackluster and weak. Further, the consumption growth is not adequately met by supply due to supply side bottlenecks caused by covid-19 after effects; which has not yet restored the production cycle to the pre-pandemic level. This is beginning to be inflationary with consumer prices rise crossing 5% level. Hence, the budget had to shift its focus on growth from consumption to investments, and infrastructure spending boost was the right area which can bring multiplier effect on incomes and consumption and also accelerate private investment.
Further, Capex creates assets, while consumption financing does not do so. It was preferred strategy as against expenditure directly to consumers for the demand boost. Although economists are divided on the policy of raising government expenditure through direct transfer to consumers’ versus capital expenditure, in the current situation thrust on investment by Government seems a better and more effective option. It is to be seen how this strategy works in creating more jobs, employment and growth.
The redeeming feature of the Budget is focus on infrastructure investment at Rs 7.5 lakh crores., an increase of 36.5%. It is intended to not only bring multiplier effect on GDP growth, but also pump prime and accelerate private sector investment and thereby give greater momentum to the economy from the private sector. The major sectors where the thrust is laid are Information Technology; Telecom; and Road and Highway Transportation with total investment of Rs 5,34,000 crores. Investment in IT is trebled, while telecom investment will increase by 10% and transport by 20%.
Budget is a financial plan, and in several government projects, it finances the implementation which is crucial in ensuring its success. The fast execution of plans and projects at central, state and district levels is critical. Government’s implementation on road transport and highways has been so far very expeditious and effective.
Buoyant Revenue
On the revenue side, the growth has been heartening. Robust corporate tax and income tax collections have overshot the budget estimates and helped in keeping the budget deficit near the target. The burgeoning tax revenue collection also reflects the buoyancy of the economy, its formalisation and tax compliance. GST collections have been robust with highest monthly collection Rs 1.45 crores. And the state governments hardly have any complaints. Privatisation, disinvestment or asset monetisation has been a supplementary source of revenue that cushions the budget deficit. During 2021-22, the budget targeted Rs 1.75 lakh crores., but has lowered the realisation to Rs 78,000 crores. Divestment of Air India has been an accomplishment and LIC public issue is expected in March. The list of future divestments includes MTNL, Shipping Corporation, Coal India, Pawan Hans, but the target has been lowered to Rs 65,000 crores.
Taxing the Crypto Assets
Crypto currency trading and investment has, over the years, invited attention from Governments and central banks the world over. Over the last one year, several trading channels and applications have emerged on the internet and mobile phones in India at retail level for trading and investment in crypto currencies. This has been a matter of concern for Governments which are looking for regulation of this techno-financial phenomenon to ensure the security of financial system and its stake holders.
Crypto currencies and digital currency units or tokens issued and transacted on block-chain technology, which is based on decentralised ledger, have grown phenomenally over the years to the valuation level crossing $1 trillion globally. China and Russia have banned crypto currency trading and investments. The Western nations are looking into regulation of these new digital monetary/financial vehicles, but have clarified to treat these holdings as investments, with gains therein to be taxed as the investment gain. Going on same line, the Government has now announced the Digital Assets like crypto currency income to be taxed at 30% without any deduction for expenses and set off for losses. Additionally, there is also 1% TDS on any transfer made in the asset. Government is yet to come out with any regulation or legislation on crypto currency activities, and also its legality or illegality. However, in light of a sharp rise in crypto currency transactions in India with larger number of investors entering this sector, the Government thought it best for investors to comply with the declaration of these transactions and pay tax on the income/gains there from. India is now estimated to have nearly 20 million investors in crypto assets, a very large exposure in numbers globally. Gains on crypto assets have been treated like horse racing or lottery gains and taxed accordingly. The Government move is intended to deter the savers from investment in these speculative assets.
Move to Digital Rupee
In light of the digital currency revolution in the private sector globally, the central banks world over have been looking into its regulation and the issue of their own digital currencies. Federal Reserve, European Central Bank, Bank of England, Canada and Australia are already engaged in this technological innovation. So is India now. The Government has given green signal to the RBI to issue the Digital Rupee using the block chain and other technologies. Currency issue is a prerogative and monopoly of a Central Bank of every country backed by the legislation of Currency Act passed by the Legislature. Crypto currency unit cannot legally perform the role of a legal tender, but it can always be available as internet vehicle which can acquire trust that is absolutely essential in any digital vehicle being traded. Cryptos units or tokens gain trust firstly, because of its decentralised nature of issue and its anonymity, and secondly, due to its scarcity causing the trend of its rising prices in terms of normal currencies.
Digital Rupee by RBI, Central Bank Digital Currency (CBDC) is the step in the digital transformation of the payments system. Internet banking and payments bank applications have already built the digitalisation of banking. The Digital Rupee will be one step further in this direction.
It is to be considered that Blockchain technology for crypto currency units or CBDC is still at a nascent stage. Its decentralised ledger structure makes it devoid of clearing house or intermediary mechanism for payments and makes it anonymous. It is argued that the blockchain technology is more efficient and cheaper and cost effective than the conventional digital technology on which current banking and payments techno infrastructure like, CHIPs, RTGS and NPCI exist. For one thing, it is sure that the block chain technology works well, but it takes high power consumption. Further, the block chains currently are handling relatively smaller volumes and its scalability to be the national and international payments infrastructure is still in testing mode. For this reason, Bank of China recently introduced and launched Digital Yuan in only two districts to check its functioning effectiveness, reliability, security, speed and scalability, and finally the cost effectiveness and viability.
Digital Rupee, like a Central Bank Digital Currency (CBDC), will be stable crypto digital unit of money or stable digital coin and will also be a legal tender, which the crypto currencies are not and they are also not stable digital coins. Several questions arise currently. Will the digital rupee use blockchain or other conventional technology? Since it will be a Rupee account with RBI what form will it take? If scalability, viability, security and efficiency are proven, it will reduce the use of physical currency. RBI’s cost of printing new currency in 2016-17 when 500 and 1000 rupee notes were demonetised was about Rs 8000 crores, and came down to Rs 5000 crores. in 2017-18. RBI’s cost printing notes ranges from Rs 1 for 10 rupee note to Rs 4.18 for 2000 rupee note. Currency or cash in circulation now is Rs 28 lakh crores, 17% higher than the earlier year due to higher demand for currency during pandemic. Digital Rupee would reduce note printing cost of RBI which will have to establish and service digital techno infrastructure for digitalisation of currency
