India’s Union Budget 2022-23: Key Highlights

Posted by Written by Naina Bhardwaj Reading Time: 8 minutes

India’s Union Budget 2022-23 was unveiled earlier today, showcasing the Narendra Modi government’s continued focus on capital expenditure projects (roads, railways, urbanization, clean mobility) as a means to keep the economy moving, creating jobs and developing ancillary industries along the way. The central government also intends to direct significant funds to state governments so they take over the burden of executing infrastructure build, such as PM Gati Shakti projects. Overall, India’s budget this year has been a somewhat muted affair with no real big bang promises or tinkering of sector-specific schemes, nor much revenue expenditure targeting the most vulnerable population segments. Some expected shocks came in the way of taxing ‘virtual digital assets’, which one can infer to be cryptocurrency and NFTs, at 30% and no setoffs allowed as the government feels its speculative gains must receive comparable treatment in the market. Still, it has generated backlash on social media, particularly in the absence of any regulatory framework for cryptocurrency, creating space for unequal transactions and unequal gains (such as between domestic and foreign players). Analysts predict that the annual budget could gradually become a non-event for the Modi government, with more dynamic announcements and programs launched targeting key electorates or business segments – whenever the need arises.

On February 1, 2022, India’s Finance Minister Nirmala Sitharaman announced the Union Budget for FY 2022-23. The year marks “Azadi ka Amrit Mahotsav” (75 years of India’s independence) and the Union Budget 2022 is to serve as a blueprint outlining various goals to be achieved in the “Amrit Kaal” – the upcoming 25-year period – from India at 75 years of independence to its centenary mark.

Sitharaman began her speech by lauding the overall resilience of the Indian economy during the pandemic – commenting on its sharp rebound and recovery. She also declared that India’s growth projection of 9.2 percent in the current fiscal is the highest among all large economies. 

While addressing the ongoing Omicron wave as an instability factor, the Finance Minister expressed relief at milder symptoms as well as the impact of accelerated vaccination in the country. Sitharaman also expressed confidence in India’s ability to withstand further challenges, given the augmentation of the country’s health infrastructure over the past two years.

India’s Union Budget 2022-23 at a glance

Union Budget 2022-23

 

2020-21 (Actuals)

2021-22 (Budget Estimates)

2021-22 (Revised estimates)

2022-23 (Budget Estimates)

Revenue Receipts

INR 16339.20 billion

INR 17884.24 billion

INR 20789.36 billion

INR 22044.22 billion

Capital Receipts

INR 18759.16 billion

INR 16948.12 billion

INR 16910.64 billion

INR 17404.87 billion

Revenue Expenditure

INR 30835.19 billion

INR 29290 billion

INR 31672.89 billion

INR 31946.63 billion

Effective Capital Expenditure

INR 6571.82 billion

INR 7733.48 billion

INR 8403.96 billion

INR 10678.89 billion

 

Union Budget 2022-23

Revenue sources

Percentage (%)

Expenditure composition

Percentage (%)

Borrowings and Other Liabilities

 

35

Interest Payments

20

GST

16

States’ Share of Taxes and Duties

17

Income Tax

15

Central Sector Schemes

15

Corporation Tax

15

Finance Commission and Other Transfers

10

Union Excise Duties

7

Centrally Sponsored Schemes

9

Non-Tax Revenue

5

Other Expenditure

9

Customs

5

Defence

8

Non-Debt Capital Receipts

2

Subsidies

8

Pensions

4

 

Budgetary Allocation to Ministries in India’s Union Budget 2022-23

Ministry

Amount (INR billion)

Ministry of Communications

INR 1054.07 billion

Ministry of Chemicals and Fertilizers

INR 1077.15 billion

Ministry of Agriculture and Farmers’ Welfare

INR 1325.13 billion

Ministry of Railways

INR 1403.67 billion

Ministry of Home Affairs

INR 1857.76 billion

Ministry of Road Transport and Highways

INR 1991.07 billion

Ministry of Consumer Affairs, Food and Public Distribution

INR 2176.84 billion

Ministry of Defense

INR 5251.66 billion

Closer look at Budget 2022 goals, and ‘Amrit Kaal’

The Modi government aspires to achieve inclusive development over the next 25 years – benefiting youth, women, farmers, Scheduled Castes, and Scheduled Tribes. Major goals are:

  • Aligning India’s macroeconomic growth with a focus on microeconomic level all-inclusive welfare
  • Promoting digital economy and fintech, technology enabled development, energy transition and climate action
  • Relying on virtuous cycle starting from private investment, coupled with public capital investment, to further crowd in private investment

These policy goals will be backed by public investments in modern infrastructure, focusing on four priority areas as stated below.

PM Gati Shakti

The PM Gati Shakti plan approaches economic growth goals through emphasis on infrastructure build and sustainable development. It will be powered by clean energy and driven by seven engines, namely roads, railways, airports, ports, mass transport, waterways, and logistics infrastructure. These engines will in turn be supported by energy transmission infrastructure, IT communication infrastructure, bulk water and sewerage infrastructure, and social infrastructure. The PM Gati Shakti National Master Plan will encompass these seven engines for economic transformation, seamless multimodal connectivity, and logistics efficiency. The projects currently being implemented under National Infrastructure Pipeline will be aligned with PM Gati Shakti framework.

Within the same framework, the “Parvatmala: National Ropeways Development Programme” has been announced for the first time for regions like Himachal Pradesh, Uttarakhand, Jammu and Kashmir, and the northeastern states. Nitin Gadkari, the Union Road Transport and Highways Minister hailed the scheme as a “great gift for the hill states”. Under this scheme, ropeway development will be undertaken under PPP mode and contracts for eight ropeway projects for a length of 60 km will be awarded in FY 2022-23. 

Further, data exchange among all mode operators will be brought on the Unified Logistics Interface Platform (ULIP), designed for application programming interface (API). Open-source mobility stack, for organizing seamless travel of passengers will also be facilitated. It has been announced that four multimodal logistics parks through PPP will be awarded in FY 2022-23.

The Union Budget 2022-23 also announced the integration of the Postal and Railways Network for facilitating parcel movement. Additionally, 2,000 km of railway network will be brought under Kavach in FY 2022-23, the indigenous world-class technology for safety and capacity augmentation. Indian railways will also benefit from 400 new-generation Vande Bharat trains with better energy efficiency and passenger riding experience; this will be developed and manufactured over the next three years.

Inclusive development

Inclusive development will be ensured by focusing on sectors like agriculture and food processing, education, skill development, health, and micro, small, and medium enterprises (MSMEs). 

All-Inclusive Welfare Focus Measures Announced in Union Budget 2022-23

Scheme

Description

Har Ghar, Nal Se Jal

38 million households to be covered in FY 2022-23

PM Awas Yojana

8 million houses to be completed in FY 2022-23

PM-DevINE (Prime Minister’s Development Initiative for North East Region)

To fund infrastructure and social development based on felt needs of the North East

Aspirational Blocks Program

For development of lagging blocks of aspirational districts

Vibrant Villages Program

Targeting development of villages on the Northern Border left out from the development gains

Digital Banking by Post Offices

100% of post offices to come on the core banking system

Digital Payments

Scheduled Commercial Banks to set up 75 Digital Banking Units in 75 districts

Agriculture and food processing

  • Promoting chemical free natural farming starting with farmers’ lands close to river Ganga
  • Promoting post-harvest value addition, consumption and branding of millet products
  • Delivery of digital and hi-tech services to farmers in PPP mode
  • Use of Kisan Drones to aid farmers
  • Launching fund with blended capital to finance agriculture start-ups
  • Implementation of Ken Betwa Link Project benefitting 0.91 million hectare farm land, providing drinking water to 6.2 million people and generating 130 MW power

Education

  • One Class One TV channel program to be expanded to 200 TV channels
  • Virtual labs and skilling e-labs to promote critical thinking skills and stimulated learning environment
  • A Digital University to be established with world class quality universal education
  • High quality e-content will be delivered through Digital Teachers

Skill development

  • Digital Ecosystem for Skilling and Livelihood (DESH-Stack e-portal) will be launched to promote online training
  • Start-ups will be promoted to facilitate Drone Shakti for Drone-As-A-Service

Health

  • National Digital Health Ecosystem to be rolled out
  • National Tele Mental Health Program to be launched for quality counselling
  • Integrated architecture: Mission Shakti, Mission Vatsalya, Saksham Anganwadi, and Poshan 2.0 to be launched
  • 2,00,000 Anganwadis to be upgraded to Saksham Anganwadis

MSMEs

  • Extension of Emergency Credit Line Guarantee Scheme (ECLGS) till March 2023, with expansion in its guarantee cover from INR`500 billion to total cover of INR 5 trillion, with the additional amount specially earmarked for hospitality and related enterprises.
  • Interlinking of various portals like Udyam, e-Shram, NCS, and ASEEM. These portals will now serve as live, organic databases, providing G2C, B2C, and B2B services like credit facilitation, skilling, and recruitment. The main aim behind the move is to further formalize the economy and enhance entrepreneurial opportunities for all.
  • Revamping of Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) scheme. Additional infusion of additional credit of INR 2 trillion for micro and small enterprises.
  • Raising and Accelerating MSME Performance (RAMP) program will be rolled out.

Productivity enhancement and investment, sunrise opportunities, energy transition, and climate action

Various announcements have been made to facilitate Ease of Doing Business 2.0 and further promote Ease of Living.

Ease of Doing Business 2.0

  • Trust based governance
  • Integration of central and state level systems through IT bridges
  • Expanding scope of PARIVESH Portal
  • Unique Land Parcel Identification Number for IT based management of land records
  • Establishing C-PACE (Centre for Processing Accelerated Corporate Exit) to facilitate voluntary winding up of companies
  • End to end online e-Bill System and utilizing surety bonds in government procurement
  • AVCG (animation, visual effects, gaming, and comic) sector promotion task force
  • Support to 5G under production-linked incentive (PLI) scheme for telecom sector
  • Opening up defense R&D for industry, start-ups, and academia

Ease of Living

  • Issuance of chip embedded e-passports 
  • Modernization of building byelaws, implementing Town Planning Schemes and Transit Oriented Development
  • Establishing Centers of Excellence in urban planning
  • Providing a battery swapping policy as an alternative to setting up charging stations in urban areas to benefit EV users

Financing of investments

In the budget, it is envisaged that public investment will continue to pump prime private investment and demand in FY 2022-23. The budget has laid out means and ways to mobilize resources, which include:

  • Blended Finance for sunrise sectors
  • Green Bonds to mobilize resources for green infrastructure
  • Inclusion of Data Centers and Energy Storage Systems in the harmonized list of infrastructure
  • Expert committee to be set up to aid investment by venture capital and private equity investment

Other announcements provide greater fiscal space to the State governments in the form of enhanced outlay – Scheme for Financial Assistance to States – for capital investment. For FY 2022-23, India’s states will be allowed a fiscal deficit of four percent of gross state domestic product (GSDP), of which 0.5 percent will be tied to power sector reforms.

The budget also announced plans to launch the Digital Rupee – Central Bank Digital Currency (CBDC) – by the RBI, starting FY 2022-23.

Tax proposals in India’s Union Budget 2022

 

Direct Tax Proposals

Introduction of Updated Return

Allowing taxpayers to file Updated Return within two years for correcting error

Reduced MAT and Surcharge

For Cooperatives, alternate minimum tax rate reduced from 18.5 percent to 15 percent and surcharge reduced from 12 percent to 7 percent

Tax relief to persons with disability

Tax relief to persons with disability by allowing the payment of annuity and lump sum amount to the differently abled dependent during the lifetime of parents/guardians, that is, on parents/ guardians attaining the age of sixty years.

The existing law provides for deduction to the parent or guardian only if the lump sum payment or annuity is available to the differently abled person on the death of the subscriber.

Parity between employees of State and Central government

 

Increasing tax deduction limit on employer’s contribution to National Pension Scheme (NPS) account of State government employees from 10 percent to 14 percent, bringing them at par with Central government employees.

Incentives for Start-ups

Extending period of incorporation of eligible startups for providing tax incentives till March 2023

Taxation of virtual digital assets

·      Any income from transfer of any virtual digital asset (Crptocurrency, NFTs) shall be taxed at the rate of 30 percent with no set-offs, deductions

·      TDS on payment made in relation to transfer of virtual digital asset at the rate of 1 percent of such consideration above a monetary threshold

·      Gift of virtual digital asset is also proposed to be taxed in the hands of the recipient

Litigation management

Better litigation management to avoid repetitive appeals

Tax incentives to IFSC

Income of a non-resident from offshore derivative instruments, or over the counter derivatives issued by an offshore banking unit, income from royalty and interest on account of lease of ship and income received from portfolio management services in IFSC shall be exempt from tax, subject to specified conditions.

Clarification on treatment of Surcharge or Cess

Any surcharge or cess on income and profits not allowable as business expenditure

 

Indirect Tax Proposals

SEZ Policy

Customs administration to be fully IT driven in SEZs

Project imports and capital goods

Phasing out concessional rates in capital goods and project imports gradually and apply a moderate tariff of 7.5 percent

Customs reforms and duty rate changes

·      Review of customs exemptions and tariff simplification

·      Customs duty rates are being calibrated to provide a graded rate structure to facilitate domestic electronics manufacturing

·      Rationalization of exemptions on implements and tools for agri sector manufactured in India

·      Extension of customs duty exemption to steel scrap

·      Reduction of duty on certain inputs required for shrimp aquaculture

Tariff measure to encourage blending of fuel

Unblended fuel to attract additional differential excise duty of INR 2 per liter from October 1, 2022

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