Budget 2022 Highlights: Five Most Important Things To Know
Infra gets lucks second year in a row. Crypto had it coming. Consumption miss?
“We are sure to achieve the numbers and if anything we will better them,” said Finance Minister Nirmala Sitharaman in a post-budget interaction with the media. She was asked whether her budget projections were too conservative.
Functional, conservative, taking a long view—these are some ways in which the Union Budget 2022 has been described in the hours after the minister's speech.
There are five key things to know about this budget
1. A Budget That Takes The Long View
By emphasising capital expenditure over short-term income support measures, the budget is essentially a bid to put India on a stronger growth path. The idea is not just to go back to pre-pandemic times when growth was faltering already but to a time when 8%+ growth was possible. That’s the thinking behind the big capex push, even at the expense of important short-term expenditure like food subsidies and rural job guarantee.
If it works, India could have another shot at investment-led growth, with a boost to jobs and incomes. If it doesn’t work, India could find itself tackling inflation and execution risks. It’s a gamble.
2. Whither LIC IPO?
The FY22 divestment target now stands revised to Rs 78,000 crore versus the earlier budget estimate of Rs 1.75 lakh crore.
The FY23 divestment target has been set at Rs 65,000 crore.
Both numbers are lower given the broad expectation of a Rs 1-lakh-crore initial public offer by public sector Life Insurance Corp.
The responses by both the finance minister and Tuhin Kanta Pandey, secretary of Department of Investment and Public Asset Management, indicate two things:
they’ve chosen to keep targets low given the failure to meet them in past years.
the LIC IPO size is yet to be determined.
“We should not conjecture on size of LIC IPO as valuation still underway,” Pandey said in the media briefing.
3. Boost Exports, Reduce Imports
One particular announcement took everyone by surprise—that the Special Economic Zones Act will be replaced with a new legislation by September 2022.
“The Special Economic Zones Act will be replaced with a new legislation that will enable the states to become partners in ‘Development of Enterprise and Service Hubs’. This will cover all large existing and new industrial enclaves to optimally utilise available infrastructure and enhance competitiveness of exports.
"Alongside, we will also undertake reforms in Customs Administration of SEZs and it shall henceforth be fully IT-driven and function on the Customs National Portal with a focus on higher facilitation and with only risk-based checks. This will ease doing business by SEZ units considerably. This reform shall be implemented by September 30, 2022.”
While the finance minister has yet to offer further detail on this, the move could likely be prompted in an effort to sustain tax incentives for India’s exports, especially IT services exports in light of the sunset clause that kicked in June 2020—it provides that only those units that start production on or before June 30, 2020 are entitled to tax sops under the existing act.
As for imports—this budget reiterates the government’s Atmanirbhar Bharat campaign by removing certain customs exemptions on project imports and import of capital goods.
4. Crypto Had It Coming
So far, India’s income tax law had no specific provision to tax crypto assets such as crypto currencies or NFTs etc...
Well, now it will. The government has introduced a provision to tax gains on all virtual digital assets at 30%, with no provision to offset loss against any other income. Gift of such assets will be taxed in the hand of the recipient.
The applicable tax rate is higher than the 10-20% long-term capital gains tax on other assets and 15% short-term capital gains tax on listed securities (where STT is paid).
The definition of virtual digital asset has been expansively worded.
The new tax will be effective April 1, after the finance bill is passed and the tax notified.
5. No Consumption Boost
From income transfers for those worst affected by the pandemic to income tax relief for middle income citizens...there was hope the budget would find limited but explicit ways to boost incomes and consumption. The finance minister has stayed away from that despite the impending five state elections.
It could be fear of exacerbating inflationary pressures or the determination to stay disciplined or even data that suggest consumption is reviving, slowly.
To be fair, the focus on infrastructure spends will increase construction and allied jobs, boost demand for commodities such as steel and cement and over time “crowd in private investment”, as the finance minister hoped in her speech. But that takes time.
There are a few other ameliorative measures—such as the expansion of credit support to MSME, especially for hospitality and related enterprises. But no direct consumption support. Not in the budget at least, though as one economist pointed out on social media—the recent cut in fuel taxes was it.